New report boosts idea of federal regulation of insurers

WASHINGTON — Proponents of allowing insurers to be federally regulated are taking heart in the inclusion of that proposal in a report recently issued by New York Mayor Michael Bloomberg and Sen. Charles Schumer, D-N.Y. The report, issued late last month and supported by New York Gov. Eliot L. Spitzer, urged that the United States make a national priority of modernizing financial services regulation. Allowing an “optional federal charter” for insurance, which has been called for by the industry for several years, was among the long-term recommendations in the report, titled “Sustaining New York’s and the U.S.’ Global Financial Services Leadership.” “It’s one more thing that speaks pretty loudly and clearly that this is an issue whose time has come,” said Gary Hughes, executive vice president and general counsel of the American Council of Life Insurers in Washington. “Our expectation is, having this come out in the way it did will be a significant boost to the momentum that’s building for the optional federal charter,” he said. An optional-federal-charter system could be created so that consumers are beneficiaries of better products and more-uniform protection, Mr. Hughes said. A single charter would give U.S. companies a uniform regulatory platform that would allow them to operate and serve their customers more efficiently nationwide as well as globally, the report said. Common regulatory scheme A federal charter would remove “arbitrary pricing and product constraints that exist in many of the 50 state regimes,” reduce the cost of adhering to duplicated regulations, and allow insurers to market their products more quickly, the report said. It also would give companies operating in the United States a common regulatory regime in line with those of their major competitors, particularly in Europe. Individual state regulators should start their own review process, the report suggested, and the President’s Working Group on Financial Markets should take on this review as part of its 2007 agenda. In addition, congressional committees should initiate oversight hearings to build legislative support for the idea. Legislation creating an optional federal insurance charter, introduced in the last Congress by Sens. Tim Johnson, D-S.D., and John Sununu, R-N.H., is expected to be introduced in this Congress. House Financial Services Committee Chairman Barney Frank, D-Mass., has indicated a willingness to consider an optional federal charter for the life insurance industry. However, state insurance officials strongly oppose losing control of insurance regulation, arguing that state regulators are closer to consumers and better able to protect them. Further, Mr. Frank and consumer advocates don’t favor an optional federal charter for property-and-casualty insurance. “We particularly opposed expanding [a federal charter] to property-and-casualty insurance,” said Bob Hunter, director of insurance for the Consumer Federation of America in Washington. “The type of regulation you need in Florida with hurricanes is a lot different from the type of insurance you need in North Dakota and Illinois.” But the federation doesn’t necessarily oppose a federal regulator altogether, Mr. Hunter said. “We are opposed to gutting … regulations,” which, he said, the Johnson-Sununu bill would have done. The CFA could support legislation that would replace state regulation with federal regulation, as long as consumer protections were high, Mr. Hunter added. Allowing a dual system of both federal and state regulations would result in “regulatory arbitrage,” he said, under which companies could choose the least-restrictive regulator. Bills that have been considered in the past calling for optional federal regulations would have lowered consumer protections, Mr. Hunter said. “You’re buying a product for future delivery,” he said. “You’ve got to make sure the insurance company is there and doesn’t cheat you.”