Eye on Insurance Industry Regulation

It has been said that “a rising tide lifts all boats.” That also raises the question, what happens to the boat when the tide goes down? The answer is that when the tide falls — or when the waters get choppy — everybody in the boat has to work together to ensure that the boat and all of its occupants remain safe until the tide inevitably rises again.

Our nation’s economy has experienced a deterioration starting with the subprime mortgage mess, followed by a credit crunch, followed in turn by the collapse or bailout of major investment firms. Then, the U.S. government approved a $700 billion rescue plan, with a portion of the funds used to partially nationalize some of our largest banks.

On the day that I was inaugurated president of the National Association of Professional Insurance Agents, the Dow Jones Industrial Average stood at 11,027.51; as I write this, the Dow continues to fall to levels not seen in more than 25 years. This has created a depressed and disorganized market, where value has been lost and remaining values are eyed with skepticism.

We are witnessing the consequences of the failure by federal authorities to prudently regulate the activities of banks and securities firms, and failure to oversee or even know the private capital markets. The failures have been breathtaking in scope and destabilized our nation’s economy.

Good Time for Agents

Despite the financial difficulties our nation faces, now is an especially good time to be an independent insurance agent.

While it is clear that our nation is moving through a nasty recession, independent insurance agents should be mindful of their position relative to the other sectors of financial services. Our industry’s fiscal house is in good order. The same cannot be said about banking and securities. Because insurance is prudently regulated by the states and insurers embrace financial soundness oversight and practice disciplines, our sector has remained stable. This is in stark contrast to the questionable activities permitted by federal regulators in the banking, securities and capital markets sectors leading to financial meltdown.

The effective and efficient supervision of our insurance industry by the state insurance regulatory system ensures the financial stability and soundness that protects insureds, insurance consumers, state general revenues, the U.S. economy, carriers and agents alike.

The advocates of federal regulation of insurance are perversely pointing to insurance (the only financial services sector that has largely been insulated from the worst of the financial carnage) and say the market meltdown proves that insurance should be federally regulated. That’s a little like a drunk who caused a bad traffic accident saying that the other drivers who remained sober need to start drinking and driving.

The plain fact is that this economic crisis proves insurance should not be brought into the federal system, because federal regulators failed so miserably in their responsibilities and obligations to supervise banking, securities and capital markets for financial soundness and the public good. As our friends at the National Conference of Insurance Legislators (NCOIL) aptly suggest, the state insurance regulatory system should serve as a model for reforms to the federal regulatory system for banks and securities — not vice versa.

PIA supports state regulation of insurance and opposes those who want to dismantle the state regulatory system in favor of federal control. PIA applauds and joins NCOIL in its call for an all states authority summit to discuss the future of state insurance oversight, modernization that must take place, and collective efforts needed to reject federal intervention and takeover efforts.

Common Good

As insurance professionals, all PIA members nationwide are all in the same boat together. To prosper — not merely survive — we must pull together for our common good.

The general tide of our economy may be receding at the moment, but our boat is strong and solid. That’s not to say that we will always have smooth sailing; no doubt, we will encounter some rough seas. But we are in a much better position to weather the turbulence because we are part of that old-fashioned sector of the economy that remained prudent while others were throwing caution to the wind.