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OFC not an Option Yet
U.S. regulatory reform of insurance not likely in the near term, NAIC seen as taking a more active role in the regulatory process.
By CYRIL TUOHY, managing editor of Risk & Insurance® Despite calls for more regulation of the financial services industry in the wake of scandals and collapse, reform through passage of an Optional Federal Charter isn?t likely anytime soon, according to one legal expert.
A federal charter would allow insurance companies that operate nationwide to choose to be regulated by a federal body instead of state insurance departments. Supporters of an OFC, which include large insurance carriers and big brokers, say it?s more efficient and would help lower premiums to buyers. Critics of the proposal, which include the powerful Independent Insurance Agents & Brokers Association of America, believe it?s an unnecessary federal intrusion into state affairs and that states already effectively regulate the industry. The troubles of AIG have helped reignite discussions of federal oversight of about 20 large nationwide insurance companies that, in case they collapse, could pose a threat to the broader economy, said Myers. Questions remain unanswered about whether and to what extent the U.S. government should regulate all insurance companies or just the large ones like AIG, Travelers and Zurich, which are licensed to operate in dozens of states. ?If you want to regulate insurance, you have to take on solvency, guaranty funds, agents and intermediary licensing, holding companies and premium tax,? Myers also said. Premium taxes are a big portion of every state budget, Myers added, and individual members of Congress will not take kindly to Uncle Sam asking for a share of the premium tax, particularly with states staring at red ink from the recession. ?There are significant problems, and for the federal government to reorganize the insurance business is going to be tough,? said Myers. Speaking at a meeting of insurance managers gathered in Indian Wells, Calif., in March, at an annual Captive Insurance Companies Association conference, Myers admitted that lawmakers in the nation?s capital are more concerned with reforming the banking system. Other than AIG, the bulk of the property/casualty industry has weathered the financial crisis of the past 12 months relatively well; in part, because the industry is already tightly regulated. With any federal proposal to regulate the insurance industry seemingly dead on arrival, Myers added that the leadership vacuum was being filled by the National Association of Insurance Commissioners. NAIC doesn?t have the authority to pass laws, but it does have the ?power to persuade,? said Myers, and that could play a key role in shifting the balance between two sides in an industry deeply divided over the role of federal regulation. ?NAIC has made the decision of trying to become a power broker or participant in insurance regulation in the future and have an enhanced position vis a vis the past,? said Myers. More recently, the NAIC has expanded its Washington, D.C., office and hired Therese M. Vaughan, a former professor and Iowa insurance commissioner. Vaughan, who has a reputation as a consensus builder, will do a good job representing the states and forge a compromise with federal lawmakers, said Myers. ?I think she?s strong enough to be able to develop a consensus,? he said. April 15, 2009 Copyright 2009© LRP Publications |
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