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Life Health > Life Insurance

ACLI: OFC Could Save Billions

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Giving life insurers the ability to choose between state and federal regulation could cut insurers’ regulatory costs by about $5.7 billion per year, according to an analysis published by the American Council of Life Insurers.

Steven Pottier, a University of Georgia insurance scholar, developed that OFC savings estimate for the ACLI, Washington.

An OFC system also would increase the efficiency of national life insurers, Pottier predicts.

Sen. John Sununu, R-N.H., and Tim Johnson, D-S.D., recently drew new attention to OFC proposals by reintroducing an OFC bill in the Senate.

Sununu and Johnson also introduced an OFC bill during the last Congress.

Pottier says simply eliminating the current duplication of insurance compliance costs, such as licensing fees, could save $5.7 billion.

The Johnson-Sununu bill would not directly affect state premium taxes, and the $5.7 billions savings estimate does not include any projected reductions in premium tax revenue, Pottier says.

The $5.7 billion savings estimate also excludes any benefits that might occur if a federal charter option increased the level of competition or helped insurers get new products to market more quickly, Pottier says.

Frank Keating, president of the ACLI, says an OFC system would let life insurers consider customers’ needs when deciding whether to go with the existing state regulatory system or switch to a new federal system.

“The result would be a more efficient regulatory structure that imposes fewer costs on insurers,” Keating says in a statement.

In the banking industry, the existence of a dual state-federal regulatory system “has resulted in healthy competition,” Keating says. “It has not resulted in a dive to the bottom” by state regulators.

OFC doubters include Charles Symington, senior vice president for government affairs and federal relations at the Independent Insurance Agents and Brokers of America, Alexandria, Va.

In August 2005, researchers at Computer Sciences Corp., El Segundo, Calif., estimated in another analysis commissioned by the ACLI that the potential savings generated by an OFC system would amount to only $600 million per year, Symington says.

“Now it is nearly $6 billion, 10 times the prior estimate,” Symington says. “Which is it?”

The IIABA believes that a federal charter would weaken protections for consumers, Symington adds.

“Consumers seem to agree as there is no consumer cry for a new federal bureaucracy in Washington D.C.,” Symington says. “That call is only coming from some in the insurance industry.”


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