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Regulators Defend The Current System

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Insurance commissioners responded to the question, “Is state insurance regulation working?”, here at a packed conference organized by the New York City Bar Association.

The seminar came just a week after the U.S. Treasury Department released a financial services reform blueprint report that proposed giving insurers and producers the option of choosing between state-based regulation and regulation by a new federal insurance regulatory agency to be created by Congress.

The Treasury Department’s blueprint report “almost shocked me, and that is from someone who has had a lot of shocks in the last few weeks,” quipped Eric Dinallo, New York insurance superintendent, who was appointed to his post by Eliot Spitzer. “If the federal government wants to wade into car and homeowner’s insurance, go right ahead.”

Dinallo said he is skeptical about giving insurers and others the option of choosing their regulators, but he noted that he is not strongly opposed to federal involvement in areas such as reinsurance.

At the state level, “we have to do better with the mechanics,” by continuing to work on projects such as the Interstate Insurance Products Regulation Commission, Dinallo said.

In New York, the dramatic differences between regulations there and in other states might be worth keeping if they make the state a leader in regulation quality, Dinallo said.

But, in many cases, people don’t know why New York’s insurance laws are the way they are, Dinallo said.

Joel Ario, Pennsylvania’s acting insurance commissioner, pointed out that state and federal regulators already work together to oversee the health insurance market.

Life insurers can make the strongest case for federal regulation, but the situation is different in the property-casualty market, because so many products there are tailored to fit the needs of individual regions, Ario said.

Ario argued that the worst case would be to give insurers and others a choice between state and federal regulation. Giving regulated entities the option of choosing their regulators would lead to efforts to exploit any differences between the federal and state systems, Ario said.

Francine Semaya, a lawyer in the New York office of Cozen O’Connor and a conference organizer, agreed that creating an “optional federal charter” regulatory system would be more difficult in the direct property-casualty market than in the life and reinsurance markets.

A change in regulatory structure could lead to unexpected changes in details such as holding company registration statements and tax allocation agreements, Semaya said.


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