Life insurers could see a decline in regulatory costs averaging over 50% if the federal government were to establish an optional federal charter, according to a study just released by the American Council of Life Insurers and the Computer Sciences Corporation.
The study was conducted over 18 months and based on responses to questions on regulatory costs from over 100 companies. The respondent companies represent about 41% of the U.S. life insurance market based on both premiums and assets, with a combined $160.2 billion in premiums and more than $1.5 trillion in assets.
In total, the study showed that state regulatory costs for the life insurance industry total about $1.1 billion annually and that these costs have an effect on virtually all processes of life insurers, from product development to claims payment.
On average, the groups found in the study that a life insurer opting for a federal charter could reduce its regulatory expenses significantly as it resolves the main problems facing companies in the 50-state system.
“A life insurer opting for a single point of regulation addresses two of the key drivers of regulatory cost outside of the regulatory requirements themselves: dealing with multiple regulatory jurisdictions and with non-uniform laws and regulations,” the groups concluded in the study. “Survey results indicate that on the average a 55% reduction in regulatory cost was the improvement potential.”
It was noted in the study, however, that these savings would not necessarily be immediate, as insurers may be held to the state regulatory requirements under which a policy was sold.