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Life Health > Life Insurance

Industry Comments To Treasury Support Optional Federal Charter

By Arthur D. Postal

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An optional federal charter for insurance should be the first step in any financial services regulatory streamlining proposal adopted by the Treasury Department, said many industry players who submitted comments in response to a request from the department.

Meanwhile, a state regulator suggested that the concept of regulation itself could be rethought.

The Optional Federal Charter Coalition’s comment letter said its member companies, agents and brokers “are unified in support of modernization of the current state-based insurance regulatory system through an optional federal charter for insurers.

Trade group members include Agents for Change, American Bankers Association, American Bankers Insurance Association, American Council of Life Insurers, American Insurance Association, Council of Insurance Agents and Brokers, Financial Services Forum, Financial Services Roundtable, Life Insurers Council and Reinsurance Association of America.

“The Coalition believes that an OFC offers the best chance to enhance the competitiveness of the industry and consequently deliver significant benefits to consumers through greater efficiency, choice and convenience. An OFC will empower consumers in the marketplace, and provide an alternative to the state regulatory system without dismantling this structure or disrupting those insurers and producers that choose to remain in that system.”

Offering a state regulator’s perspective, New York Superintendent of Insurance Eric Dinallo noted that neither the current state-based system nor the proposed OFC are ideal solutions. Were the government starting from scratch, “I highly doubt we would create the current system,” he said, but offering a federal option will not provide a cure-all either.

While “complex and costly,” the state-based regulatory regime has achieved the goal of solvency and consumer protection, Dinallo argued, “and generally does so while preserving a vibrant and innovative insurance industry.”

Instead of looking at state-versus-federal, Dinallo called on the Treasury to take a different perspective on the issue, questioning whether the concept of regulation itself, rather than the specific format, should be changed. In his comment letter, Dinallo suggested that regulation of insurance and other financial services could take a “principles-based” approach that would be focused on achieving the outcome of ensuring fair, competitive markets and ensuring provider solvency.

The only industry respondent to temper its support for creation of an OFC for life insurers was the National Association of Insurance and Financial Advisors.

“While our regulatory reform policy continues our century-long support for state regulation of insurance and confirms our commitment to improve the state-based system, we believe the status quo of insurance regulation is detrimental to consumers and NAIFA members,” said William Anderson, NAIFA senior vice president for law and government relations.

“Thus, our policy acknowledges that all regulatory reform options are on the table and that NAIFA is willing to consider a breadth of alternatives in our desire to fix the problems confronting us,” Anderson said. “As a result, the policy embraces federal initiatives to improve the regulation of insurance. Simply put, NAIFA favors reform, improvement and progress over the status quo.”

Another agents’ group, Agents for Change, called for a federal option, arguing that the current state regimes “cannot keep up due to the globalization of the business, and this critical shortcoming has a very real and detrimental impact on insurance producers and consumers–and the insurance marketplace as a whole.”

The American Council of Life Insurers, which is a member of the OFC Coalition, told the Treasury that an OFC has been a “top priority” for the ACLI and its member companies for several years.

Gary Hughes, ACLI executive vice president and general counsel, added in the letter that, “Regulation of the business of insurance takes place today at the state level.

“We take no position on the wisdom or practicality of unifying or significantly integrating existing U.S. federal financial regulators,” he added. “We do strongly assert, however, that attempting to do so without first establishing an independent federal insurance regulatory structure would be procedurally unworkable, potentially risky to the solvency of insurers and to the well-being of their customers, and would likely engender strong insurance industry opposition.”

Ken Cohen, senior vice president, government relations, for MassMutual, said “the current system of state-only regulation of life insurance companies with national and global businesses activities is the most serious flaw in the United States’ current system of regulation for financial institutions.”

Cohen said, “the current state-only regulatory approach stifles innovation, creates duplicate and redundant regulatory costs, and increases the cost of insurance products for American consumers, while offering little in the way of additional safety and soundness or customer protection.”

Creation of an optional federal charter for insurance companies, to be regulated by a single entity at the federal level, is essential to ensuring that U.S. insurance companies are able to compete effectively both with other types of financial institutions within the United States as well as with foreign insurance companies in the global marketplace,” Cohen added.

Northwestern Mutual President and CEO Edward Zore also called for the establishment of an OFC as a “first priority,” arguing that it should be undertaken even in advance of the broader review of financial services regulation.

“Insurance regulatory reform should not be delayed or subsumed in a larger effort to overhaul the entire federal financial regulatory landscape,” he said. “We believe a federal insurance regulatory structure must be established before a successful comprehensive overhaul could occur.”

Alan Kreczko, executive vice president and general counsel for The Hartford made a similar argument in his comments. “We feel that there is ample evidence that reform of the system of insurance regulation in the U.S. should be considered a critical priority,” he said.

“Consumers of insurance and insurance carriers alike cannot afford to wait while a broad review of the financial service industry is undertaken,” he said. “The time for acting in the insurance regulatory arena is now.”

Patrick Baird, president and CEO of AEGON USA, Inc., said the company strongly supports the creation of a “national framework” for insurance regulation, and that the establishment of an OFC would be an “essential step” in the process.

That sentiment was echoed by R. Lucia Riddle, vice president of federal government relations for the Principal Financial Group, in her comment letter.

“Our main competitors are banks and mutual funds, which do not labor under the same costly and time-consuming regulatory burden,” she said. “More generally, the U.S. state-based insurance regulatory system is a drag on the ability of U.S. insurers to compete with insurers based outside the U.S. Banking and Securities regulatory systems have been repeatedly modernized to meet the demands of the global marketplace. But not the insurance industry.”

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