Following the introduction of optional federal charter legislation in the Senate last week, state regulators and legislators questioned how such a charter would help consumers and improve state insurance regulation.
The legislation was sponsored by Sens. John Sununu, R-N.H., and Tim Johnson, D-S.D.
“I’m not sure it can be effective,” says Alessandro Iuppa, Maine superintendent and president of the National Association of Insurance Commissioners, Kansas City, Mo.
Many products are state-specific and a lot of state law would have to be preempted in order to attempt to create a system analogous to the banking system, he adds.
He notes the creation of such a system is “hypothetical” but says that if it were to be developed, it would leave open questions such as how families would be covered by insurance where one spouse was covered by a federally chartered insurer and the other by a state chartered insurer.
It also leaves open the question of how well consumer questions and complaints would be handled, he says.
State insurance departments offer a quicker response time and are easier than interacting with a federal agency, which he described as “never easy at best.”
In Maine, the department handles a significant volume of calls, Iuppa says. “I’m not confident the citizens of Maine would get the same response in Washington.”
In fact, in programs where state authority has been preempted, including the Medicare Part D prescription drug plan and ERISA, Maine and other states have done what they could to help consumers with questions or problems, Iuppa says. However, he adds, “the ability to help is limited by limited authority.”
State insurance regulators can encourage entities to help the consumer, but “there is a fork in the road where there is just not the authority to act anymore.”
He says the new Medicare Part D prescription drug program is a “disaster” that has left many consumers with questions that state regulators have tried to answer.
“Who is this really for? How is the bill helping consumers?” asks Susan Nolan, executive director with the National Conference of Insurance Legislators, Troy, New York. “It isolates state legislators and commissioners from their constituencies.”
Nolan wants to know if there has been any cost analysis that has been done on the issue. “I understand a lot of business has an interest in this, but what is it all about–streamlining business or taking care of the consumer?”
“We don’t think federal programs have worked so well in the past,” Nolan says, noting the Savings & Loan crisis, FEMA’s response to disasters, Medicare and ERISA.
She also says if state premium taxes are lost, it could have a huge impact on states. Some $13 billion in premium taxes were collected in 2003, she says, citing NAIC statistics.
Iuppa also questions the impact of the loss of premium taxes to the states. When asked if that was part of the reason behind the move to introduce such legislation, he responded, “I don’t know, but I would give proponents the benefit of the doubt that they believe that there are good reasons for an optional federal charter.”
The move toward an optional federal charter would actually be a step toward more deregulation, he says.
On the issue of continuing to use state guaranty funds in an OFC system, Iuppa wondered about the details of such an inclusion–whether companies in a federal system would still be eligible for credit for contributing to the funds as is currently the case under the state system.
If federally chartered companies are being put in a state guaranty system, he also wondered whether states would have any input on solvency.
He says state insurance regulation is and can continue to be effective and that efforts such as an interstate compact for single product filings will increase efficiency. The compact is currently enacted in 23 states, and a full 26 states needed to make it operational should be in effect this year. Once the 26 states are on board, he says he believes there will be a “flurry” of other states that will join the compact.