Insurance customers would benefit from updated regulation

Inarguably, the current state-based insurance regulatory system is a dysfunctional relic that has stifled property/casualty product creativity for years.

This patchwork regulatory system is filled with wasteful inefficiency that is costly to individual states, insurance companies and consumers. It is embedded with hurdles to introducing new insurance products to the marketplace–hurdles so high that they amount to a ban on innovation.

Frequently, insurance customers cannot carry their policies with them when moving a home or business across state lines. Why not? Because of idiosyncrasies and inconsistencies within the state-based regulatory system.

Depending on geographical location, a customer may only move across a river, or a line on a map, but in too many instances, his or her policy is not portable because a product approved in one state may not be approved in another (even neighboring) state.

This unfortunate, completely unnecessary situation has existed for years and in many instances, blame for the resulting problems wrongly have been assigned to insurers.

In fact, the real culprit is the patchwork quilt that comprises state-based regulation; this dysfunctional system continually confounds, frustrates, and inhibits insurers who want to respond to the ever-changing needs of consumers.

Modernizing insurance regulation does not mean sacrificing consumer protection. In fact, the American Insurance Association (AIA) and our allies support a modernized system with a federal regulator focused on maintaining insurer solvency and monitoring insurer market conduct.

Consumers clearly are best protected when regulators are making sure insurers’ finances are managed responsibly so that insurers are around to pay claims, and that bad actors in the industry are quickly identified and dealt with.

Rather than tolerating arbitrary and conflicting regulatory requirements that do not serve the best interests of consumers, a modernized insurance regulatory system should be built on uniform, operational requirements for insurers. Similar to the current dual regulatory system for banking, insurers then would have the option, depending on what best serves their customers, of being regulated at the federal or state level.

An optional federal charter is just that–an option. The state regulatory system (including state premium taxes and guaranty funds) would not go away.

AIA supports a modernized insurance regulatory system that would:

• Provide uniform and efficient regulation.
• Empower consumers by enabling insurers to respond quickly and creatively to their needs.
• Allow the competitive marketplace to be the primary influence on rates and product design.
• Establish a national regulator focused mainly on insurer solvency and market conduct.
• Keep pace with financial services industry reform, market globalization, and technology.

Such an updated in-surance system would actually promote more competition and creativity in the marketplace by letting consumers, not government officials, determine what insurance products are available in the market.

Insurance customers would receive added value if the insurance market were allowed to take advantage of new technologies like electronic signatures. The federal “e-signature” law has made electronic transactions as legally valid as those executed on paper, but this option is not available to all property-casualty insurance consumers. If it were, insurance consumers would be able to get a customized, portable and state-of-the-art insurance policy within minutes.

The speed of change in the financial services realm is ever increasing, and marketplace barriers imposed by the current, outdated state-based insurance regulatory system are simply unacceptable and inexcusable today. Change has been promised for decades at the state level, but the glacial pace and remaining resistance carries an unnecessary price for consumers and insurers.

A broad, bipartisan group in Congress knows that the U.S. insurance regulatory system needs modernization, and AIA is looking forward to being a part of these timely and important discussions. Everyone who wants to remove obstacles to economic growth and empower consumers in the marketplace should also welcome and participate in this dialogue. The insurance marketplace needs an alternative to the current state-based regulatory system, and a well-constructed optional federal charter is the best choice for a sound economic future.

Marc Racicot is president of the American Insurance Association and a former governor of Montana. He joined AIA from the law firm of Bracewell & Giuliani, L.L.P., where he had been a partner in the Government Relations and Strategy section. Before joining Bracewell & Giuliani, Racicot served two terms as governor of Montana (1993-2001).