State insurance regulators have only themselves to blame for a renewed push by parts of the insurance industry for federal insurance agent registration and an optional charter from Congress for insurance companies.
For years, the industry has been complaining about the lack of uniformity in regulation across the states. According to a study by the American Council of Life Insurers, this lack of uniformity costs the industry — and ultimately customers — $432 million a year.
But state regulators have failed to respond to the complaints and have failed to take any steps to harmonize their regulations to any significant degree.
Insurers still must deal with different fees, different renewal schedules, different continuing-education requirements, etc.
Most of the differences should be easy to eliminate so that insurance licensing is less of an operational burden and less expensive for firms that operate in more than one state.
While some insurers see hope in a federal approach, others prefer a coordinated state effort. They oppose even the option of a federal charter, concerned, no doubt, that the mere availability of an alternative eventually will lead to the federal charter's becoming the default choice. They argue that despite frustrations, state regulators — often because they are local — are probably easier to deal with than federal regulators.
What they don't say, of course, is that they want to preserve the enormous political clout they wield in the states.
Coming from the same don't-rock-the-boat school, state insurance commissioners oppose federal chartering because their states might lose revenue. Maybe more importantly, their jobs would become less important or perhaps even disappear — though when was the last time you saw a government job eliminated?
The bottom line is that the system is inefficient and hurts consumers.
Harmonizing state regulations would save between $268 million and $377 million a year, the Washington-based ACLI estimates. That wouldn't eliminate the entire $432 million burden imposed by the lack of uniformity, but it would help.
The primary role of state regulators is to protect the insurance consumer. But if the cost of that protection is padded by more than a quarter of a billion dollars a year, simply because regulators can't coordinate their regulations, they aren't doing a very good job.
If state insurance commissioners don't get their act together — and soon — Congress should step in and establish an optional federal insurance charter and a federal registration program for agents.
Competition is good for the private sector, so maybe a little in-tragovernmental competition will prod state insurance regulators to become more responsive and do the right thing for the people they are supposed to protect.
