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September 10, 2006 at 04:00 PM
Because of the press of more important business and the upcoming primary elections, it appears that further consideration of an optional federal charter for insurers is, for the moment, a dead issue. However, this issue has been declared dead many times before and someone always steps forward to resuscitate it.
My first brush with this issue goes back about 35 years when a handful of major companies sought legislation for federal regulation of insurance. The proposal went nowhere because small companies domiciled in numerous states offered strong opposition. I am sure there were prior attempts to promote such legislation but they were beyond my own personal experience and involvement.
About 15 years ago, essentially the same group of companies tried to chip away at the McCarran-Ferguson Act by supporting a measure that would repeal the insurance industry antitrust exemption. They reasoned that as companies, they were already operating as if the exemption did not exist. But alas, there were hundreds of companies who felt the need of the exemption, for both administrative and marketing purposes, so the proposal sank like the Titanic.
Usually proponents of federal regulation point to the potential savings in administrative costs associated with policy filings and licensing as their primary justification for such a change. Added to this is frustration often felt because of the slowness in getting approval in some states. One can only speculate whether a federal agency will act any swifter; if it does not, this would impair operations in all states rather than in just a few tardy ones. Given the slow response of the “Feds” in other areas, it seems to me a lot to hope for.
Recently, proponents of this issue have added a new weapon to their arsenal of reasons to change. They argue that we need a federal champion to counter the aggressive actions of bank regulators that have permitted banks to expand their activities into fields of commerce. There is a touch of irony in this as you now watch the banks squirm as Wal-Mart and Home Depot make moves to enter the realm of banking. Tearing down walls usually opens up a two-way street. Given the expansion that many insurance companies have already experienced, it is not clear to me where they would want a “good buddy” regulator to take them.
My judgment in this area is admittedly colored by my experience in 1979 with the Federal Trade Commission. The FTC had issued a report regarding the industry’s core product that was devastating and deemed inaccurate by the industry. Multiple encounters with the FTC ensued and finally relief from their antics came as Congress acted to restrain them.
