Bankers Say Insurance Regulation Needs Major Overhaul
Bankers believe major changes are needed in insurance regulation in order to make the industry more efficient and that the bank model, specifically a federal charter option, is a good starting point.
Maryland Insurance Commissioner Alfred W. Redmer Jr., emphatically disagreed, however, at a recent banks-in-insurance conference, saying state regulation “is providing a value-added service” and insurance regulators are amenable to change to make the business friendlier to bankers.
The comments were made at a panel discussion on “The Future of Insurance Regulation” that closed out the annual meeting here of the American Bankers Insurance Association.
“State regulators acknowledge the need for change and want to bring about change…to bring efficiency to the regulatory process within and above the different states,” Redmer said. “We acknowledge the competition within the financial services industry.” He cited as examples such issues as producer licensing, privacy and coordination with federal regulators, where, immediately after the Gramm-Leach-Bliley Act was passed in 1999, state regulators began “reaching out” to ensure that the changes imposed by the law were carried out swiftly.
But, he said, recreating the dual banking system for insurance, as the ABIA is proposing, is inappropriate. “Having a second regulatory system produces nothing but confusion for consumers.”
Noting the improvements in uniformity and coordination that state regulators have agreed to, Redmer also said that the State Modernization and Regulatory Transparency (SMART) Act bill being drafted in the House Financial Services Committee “is a good start for discussions.”
The bankers, for their part, disagreed. James McIntyre, of the McIntyre law firm, said one of the biggest problems for bankers in dealing with insurance regulation is uniformity. “States have not provided uniformity, they have simply adopted reciprocity, and within that, states inevitably interpret statutes differently.”
Another speaker, Alan Liebowitz, president, OMNIA Life (Bermuda) Ltd., has worked for more than 25 years in the banking and insurance industries, “and therefore has experience in both industries and how both industries are regulated.” Liebowitz said that from his perspective “the insurance industry regulatory structure is broken and broken virtually beyond repair.” He said that “what we are advocating at the ABIA is not a modification to the state system but rather an alternative to it.” He said the members of the trade group “want to establish an optional federal charter” for insurance.
The problem with the current system, Liebowitz said, is that banks do business nationwide, in 50 states. “We need a sense of uniformity; we need to offer to our customers, whether they are a banking customer in New York or Illinois or South Dakota or California, a uniform product. The notion that we cannot offer a uniform product because of a 50-state disparate type of regulatory interpretation is destructive to the business.”
Such a structure bars innovation, he said. “Innovation is the key,” Liebowitz said, and “is what differentiates between banking and insurance regulation because what you have coming up in the banking system is that you see innovation, whether it comes up from the federal side and goes to the state side or innovation on the federal side that is picked up on the state side.”
Later, he added that “the fact is we are not looking to throw the baby out with the bath water. We want another child.”
Reproduced from National Underwriter Edition, November 4, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.