The logic of an optional federal charter for regulating the insurance industry is “overpowering,” says Marc Racicot, former 2-term governor of Montana and now president of the American Insurance Association, Washington.
Racicot’s comment was part of a response to a recent letter from state legislators to the National Governors Association opposing an optional federal charter.
The National Conference of Insurance Legislators, Troy, N.Y. sent the letter to the NGA, Washington, Aug. 24, noting the costs of a federal insurance bureaucracy that would be established under the National Insurance Act of 2007 (S. 40-H.R. 3200), proposed legislation that would establish an OFC.
The NCOIL letter argued that “an OFC would set up a bifurcated regulatory system for insurance, put at risk important state revenue, nullify critical state-initiated consumer safeguards, and delay and deny important consumer access and recourse in problem times.”
The NCOIL letter also referred to recommendations from the AIA and the American Council of Life Insurers, Washington, supporting an OFC as “ill-advised.”
In his response, Racicot said that both he and Frank Keating, ACLI president and former governor of Oklahoma, have the perspective that “if it wasn’t good for the consumer, and there wasn’t a convincing case, then we wouldn’t try to be manufacturing one.
Bipartisan support for the bill by both Democrats and Republicans is testimony to the logic behind OFC proposals, Racicot said.
There is “an enormous effort on a global scale to eliminate trade barriers,” and an OFC would help accomplish this goal, he added.
A dual regulatory system of banking has existed since the Civil War and has worked “exceptionally well,” with 70% of the banks still choosing a state charter, according to Racicot.
“Not all companies are positioned to cover property-casualty coverage or life coverage on a broad, national basis,” he said.
State revenue will not be threatened by provisions in the OFC bill, and states will continue to assess and collect premium taxes, he maintained.
Moreover, an OFC could make it possible to offer a whole new array of products that would be spread across different geographic regions, Racicot said. By eliminating different requirements among states it would make it possible for insurers to offer products more uniformly, he adds.
The ACLI also released a statement, noting that the legislation now pending would preserve the states’ right to raise revenue from insurance companies.
The pending legislation “recognizes that despite the sincere efforts of groups such as NCOIL to achieve uniformity and efficiency in insurance regulation, the insurance marketplace has evolved to the point that exclusive state oversight no longer serves the best interests of companies, producers and, especially, consumers,” according to the ACLI. “Americans relocate across state borders regularly. Their financial security needs do not vary from state to state, and neither should insurance regulation. Insurers anticipate no change in taxation of life insurance companies.”
In an Aug. 28 letter to the NGA, the National Association of Insurance Commissioners, Kansas City, Mo. thanked the organization for reaffirming its support of state-based regulation during its recent national meeting.
“Unlike a federal bureaucracy, state-based insurance regulation is accessible, accountable, and responsive,” the letter states. “State regulators live and work in the region they serve and experience first hand the impact of insured events on their fellow citizens. We enforce laws developed by state legislatures that are uniquely positioned to accurately reflect local values, concerns, culture and socioeconomic conditions. A federal regulator is little more than a tool to circumvent those laws at the expense of your constituents.”
The letter is signed by Walter Bell, NAIC president and Alabama insurance commissioner, Sandy Praeger, Kansas insurance commissioner and NAIC president-elect, and Cathy Weatherford, NAIC executive vice president and chief executive.