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Life Health > Health Insurance

Report Sees Peril In Regulatory Reform

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Making changes to the current system of regulating insurance is not without risk, a former director of the Illinois Department of Insurance says.

“The insurance industry has been mired in this most significant regulatory debate since well before the current recession,” writes Mark Boozell in a new white paper.

The former director of the Illinois Department of Insurance (1995-1998), Boozell wrote the paper for the Professional Insurance Agents Insurance Foundation, Washington, D.C.

A plethora of federal agencies and entities already have “some measure of authority” over various aspects of insurance, he points out. Since insurance remains a state-regulated business, these federal entities work regularly with state insurance departments and the National Association of Insurance Commissioners to coordinate activities.

Acknowledging this, “the Obama administration has called for a new office of insurance within the Treasury Department but will not propose federal regulation of the insurance industry as a part of its sweeping financial reform plan,” writes Boozell.

But he cautions that “the devil is in the details.” The report discusses some of those details.

For instance, the assessments, questions, suggestions and even some of the proposed solutions thus far presented “have at times appeared to be greatly over simplified,” Boozell writes. He cautions that “there are critical material differences that apply to the business of insurance that do not apply in other financial services areas.”

Making a major change to a complex and sophisticated regulatory structure is could pose significant risk, he adds.

The federal government’s interest in and discussions of the insurance industry as an “over-reaction to the AIG situation” that “introduces the risk that all insurers will get swept into the vast federal regulatory overhaul of the U.S. financial services industry,” he says.

“Without proper and deliberate care, at best this would mean insurers being subjected to duplicative, confusing and costly dual regulation. At worst, it holds the real prospect of failed consumer protections and failed insurance markets. These potential outcomes must be weighed against the current track record that state insurance commissioners have demonstrated in their regulation of the U.S. insurance marketplace.”

Boozell concedes that a “thorough, candid evaluation” of the existing state regulatory environment is crucial in determining a proper strategy for future reform. He also says, however, that “an equally important examination needs to take place concerning the overall ability of the federal government to exercise the substantial increase in regulatory authority sought by proponents of the optional federal charter.”

In his view, a variety of arguments that have been presented on federal oversight are valid and call for further consideration. But “the very nature of the arguments themselves–relatively young, underdeveloped and ripe with disputable logic–render the overall debate a work in progress and desperately needing additional examination.”

The PIA Foundation that commissioned the white paper is affiliated with the National Association of Professional Insurance Agents, Washington, D.C.

The entire white paper can be viewed here.


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