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Regulation and Compliance > Federal Regulation

Better The Devil You Know Than The Devil You Don't

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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.

The part of this encounter that I most remember and found most distasteful was the attitude of the bureaucrats with whom we dealt. They were arrogant and disdainful of our business generally. One lady said to me, “Why do we need agents at all? My husband and I are quite capable of deciding for ourselves how much insurance we need.” She also, in the course of the conversation, revealed that since both she and her husband worked for the federal government, everything they needed was provided and they really didn’t need private insurance.

About the same time I shared a platform at an industry meeting with the federal regulator who stated he would have no problem playing the role of the 500-pound gorilla that would replace the 50 monkeys now regulating insurance. It reminded me of the old bromide, “Be careful what you ask for–you just might get it.” A federal regulator as your “champion” has always struck me as an oxymoron.

The problem with this issue is that there has never been real industry unity on the subject. At first it was viewed simply as a big company vs. small company issue. There were always more small companies with influence in their respective states, so not much happened. A senator’s vote in South Carolina or Wyoming carries the same weight as one from New York or New Jersey.

My concern has always been the effect the federal presence would have on marketing. While savings in administrative costs and a shorter filing time are seductive, it would mean little if, in the process, chaos was created in the marketplace.

Present law creates what is known as “state action doctrine,” which permits such laws as “anti-rebate” statutes and “anti-replacement” regulation. These acts under federal law would be deemed anti-competitive and would not likely be present in a federal code. Some say no big deal–we can live without such laws. I disagree. In my former business I witnessed what happened when the federal “Fair Trade” laws were repealed. An orderly marketplace became a jungle and cutthroat competition became the norm, wiping out many organizations. One has only to read the history of our own business to know how detrimental cutthroat competition was in our early years.

So long as a federal presence in the regulation of our business mainly serves the interest of large companies in a few states and at the same time puts at risk our marketing environment, I do not believe much is likely to happen. Perhaps our energy would be better spent improving what we already have and understand.


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