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Regulation and Compliance > State Regulation

Another Round In OFC War Of Words

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Marc Racicot, former governor of Montana, and now president of the American Insurance Association, responded to points in a letter from state legislators to the National Governors Association urging governors to oppose an optional federal charter.

The letter sent by the National Conference of Insurance Legislators on Aug. 24 to the NGA notes the costs of a federal insurance bureaucracy which would be established under S. 40/H.R. 3200, the National Insurance Act of 2007. In the letter, NCOIL argues 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 refers to recommendations in an earlier letter from the AIA and the American Council of Life Insurers, Washington, supporting an OFC as “ill-advised.”

When asked how he would review the NCOIL letter if he was still serving as a governor, Racicot says 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.

“The logic is overpowering,” Racicot continues. And bipartisan support for the bill by both Democrats and Republicans, he adds, is testimony to that logic.

Racicot says there is “an enormous effort on a global scale to eliminate trade barriers” and an OFC would help accomplish this goal.

He also notes that a dual regulatory system of banking has existed since the Civil War and has worked “exceptionally well.” In fact, it has not hurt the state banking track, with 70% of the banks still choosing a state charter, according to Racicot. “Not all companies are positioned to offer property-casualty coverage or life coverage on a broad, national basis.”

State revenue will not be threatened by provisions in the bill and states will continue to assess and collect premium taxes, he maintains.

And an OFC could make it possible to offer a whole new array of products that would be spread across different geographic regions, he says. And, for existing products, it would eliminate different requirements among states and make it possible to offer products more uniformly.

The ACLI released a statement, noting that the legislation now pending would preserve the states’ right to raise revenue from insurance companies.

The pending legislation, according to the ACLI, “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. 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 thanked the organization for reaffirming its policy position in support of state-based regulation during its recent national meeting.

The letter was 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 CEO.

It states that “unlike a federal bureaucracy, state-based insurance regulation is accessible, accountable and responsive. 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 NAIC letter also notes the analytical and reporting tools that the NAIC has developed to allow regulators to keep abreast of the financial and market conditions of regulated entities.