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Financial Groups Weigh In On Optional Federal Charter

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Connolly column on state regulation touched a nerve

To The Editor: We agree with one aspect of Jim Connolly’s recent column, “Making the Case,” in the Oct. 10 issue: nothing focuses the mind more keenly on the debate over state versus federal control of insurance regulation than disasters of Katrina and Rita’s magnitude. However, the reasons for supporting insurance regulatory reform and the federal role an Optional Federal Charter contemplates go well beyond the occurrence and severity of natural disasters.

For example, the states’ response to these disasters does not demonstrate a resolution to solving:

==inconsistent and inefficient regulation;

==statutory barriers to product introduction and innovation;

==government rate regulation;

==inconsistent and duplicative market conduct regulation;

==conflicting agent licensing and continuing education requirements; and,

==the lack of a federal insurance administrator to represent financial/regulatory interests on a global basis.

In June of this year, more than 135 banks, insurance agencies and insurance companies signed a letter urging the Banking Committee of the U.S. Senate to study an Optional Federal Charter proposal. If states had solved the problems listed above in the 130 years during which they said they were trying, the movement to compel states to share insurance regulatory duties with the federal government would not be as strong as it is.

Which brings us to Mr. Connolly’s thesis: While state insurance regulators in Louisiana, Alabama, Mississippi and Texas should be praised for their tireless efforts in the aftermath of Katrina and Rita, suggesting, as Mr. Connolly does, that an optional federal charter should be abandoned because of their efforts misses the point. These regulators did a fine job administering their own state’s laws, but the fact remains that their own laws are a maze of disparate state insurance regulations.

Efforts at uniformity and consistency are further frustrated by overzealous state attorneys general who intercede through the courts in an attempt to undermine contractual provisions approved by the state insurance department. Mississippi Attorney General Jim Hood’s lawsuit is just the most recent example of this problem–a problem that may seem counterintuitive to most observers but one that is part of the dysfunctional system in which insurers are forced to operate.

Perhaps a single set of federal insurance regulations can help to address the issue of restoring capacity in personal lines products in the Gulf Coast states. Louisiana State Representative Shirley Bowler, who Mr. Connolly cites in his editorial, thinks having an Optional Federal Charter in place would encourage more companies to write insurance in her state now that the true risks to life and limb are known.

We think she is right on the mark.

J. Kevin A. McKechnie

Government Relations Director

American Bankers Insurance Association

Gary Hughes

Executive Vice President, General Counsel

American Council of Life Insurers

Leigh Ann Pusey

Senior Vice President, Government Affairs

American Insurance Association

Lisa McGreevy

Executive Vice President, External Affairs

The Financial Services Roundtable

Floyd Stoner

Executive Director, Congressional Relations & Public Policy

American Bankers Association

Robert Poli


Agents for Change

Cutting Group Life Is Not The Solution

To The Editor:

The recent articles inNational Underwriter (“Wal-Mart Ponders Reshaping Its Benefits,” Oct. 31) and other publications concerning Wal-Mart’s struggle with employee benefits surely caught the eye of employers and employees alike. While there are many opinions regarding how Wal-Mart manages its employee benefits, the company is not alone in dealing with the effects of high benefit costs. After all, several years of double-digit medical premium increases have forced employers to look at every budgetary line to wring out savings. Employee benefits are often one of the places employers look to make cuts.

One item that Wal-Mart was contemplating changing was its group life benefit for employees. As your article reported, “the proposed cutback in life insurance could add up to substantial savings for the retailer in aggregate…even though the insurance cost per employee is modest.” Employers, including Wal-Mart, must proceed with caution if they target group life insurance as an easy way to minimize expenses.

According to recent research by LIMRA International, roughly 50% of employees report being concerned or extremely concerned about providing for their spouse and family if they should die prematurely. Americans value their group life benefit, and increasingly, it is the only life insurance coverage they have–only half of households have individual coverage. By cutting group life, employees and their families are left even more vulnerable to the financial hardships associated with premature death.

Cutting group life insurance coverage is not the solution to the budgetary problems of American employers. Wider change is needed, but it is important to realize that no change will be effective until there is a willing coalition of employers, insurance carriers, health care providers, the government and, most importantly, employees (voters) to tackle the larger problem: unsustainable health care costs.

Jennifer Parmelee Witt

LIMRA International

Windsor, Conn.


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