The life industry last week sought to build support for optional federal charter legislation introduced in the Senate by Sen. Tim Johnson, D-S.D., and Sen. John Sununu, R-N.H., citing a recent study showing federal regulation could cut costs for life insurers by $5.7 billion or more.
Conducted on behalf of the American Council of Life Insurers by Dr. Steven Pottier of the Terry College of Business at the University of Georgia in Athens, the study found that an optional federal charter as proposed in legislation would significantly increase the efficiency of insurance regulation for insurers operating on a nationwide basis.
The $5.7 billion in savings, Pottier said, would be the result of eliminating “largely regulatory compliance costs” that are duplicated by each of the various jurisdictions nationwide. Such costs would include licensing and other fees required to be paid by insurers, such as those to cover market conduct examinations, but do not include state premiums taxes, which would continue to be collected under the Johnson-Sununu bill.
Pottier said $5.7 billion was actually a “conservative” estimate, and that the study did not include the additional potential benefits that a federal charter could provide, such as increased competition or an enhanced ability for insurers to bring new innovations to market swiftly.
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“An optional federal charter system would allow life insurers to conduct business either under the existing state regulatory system or a new federal system, depending on which better suits their customer base,” said Frank Keating, president and CEO of the ACLI. “The result would be a more efficient regulatory structure that imposes fewer costs on insurers, costs that are often passed on to the customer.”
In discussing the bill prior to its introduction, Sununu spoke along many of the same lines, repeating an 1871 quote by New York State Insurance Commissioner George W. Miller that the state commissioners were then “fully prepared to go before their various legislative committees with recommendations for a system of insurance law that will be the same in all states” and would be uniform rather than reciprocal.
“We are no closer to that today than we were 136 years ago,” Sununu said.
According to Sununu, the OFC legislation he introduced with Johnson is officially budget-neutral. The proposed federal regulator would be established with funds borrowed from the Treasury, but that loan would be repaid over time using money assessed from federally regulated insurers.
However, Keating said discussions on Capitol Hill provided the impetus for the ACLI to commission the study and for 3 others to be released in the coming months.
“In the course of conversations over the last year, a number of Hill staffers have made it clear to us that it would be helpful” if they had a statistical analysis of the potential benefits a federal charter option would bring with it, Keating said.
Exactly how great such benefits would actually be was questioned by an opponent of the OFC bill, Charles Symington, senior vice president for government affairs and federal relations for the Independent Insurance Agents and Brokers of America.