Agents: Optional Federal Charter Dual Structure
Optional federal chartering, federal regulation and the creation of a new federal bureaucracy go too far, the equivalent of throwing the baby out with the bath water.
The Independent Insurance Agents & Brokers of America, and New Hampshire, (the Big “I”) strongly oppose S. 2509, the National Insurance Act of 2006, introduced recently by our own Sen. John Sununu (R-N.H.) and his colleague, Sen. Tim Johnson (D-S.D.).
IIABNH opposes federal regulation, and more specifically an optional federal charter (OFC), for a number of reasons. Instead, we support a middle-ground approach to regulatory reform, the State Modernization and Regulatory Transparency (SMART) Act proposed by Chairman Mike Oxley (R-Ohio) and Subcommittee Chairman Richard Baker (R-La.) of the House Financial Services Committee. SMART would improve and modernize state insurance regulation, without creating a federal regulator.
There is no question in the insurance industry that the existing regulatory system needs comprehensive reform. Change is long overdue, and virtually every industry stakeholder agrees the existing system is a slow, inefficient patchwork of differing laws and regulations. The Big “I” agrees strongly with the need to update the regulatory system, but a one-size-fits-all scheme that creates a new federal bureaucracy is not the answer.
The Big “I” is among the leaders in advocating reform of state insurance regulation. Although the need for greater efficiency and uniformity is clear, IIABA believes optional federal chartering, federal regulation and the creation of a new federal bureaucracy go too far, the equivalent of throwing the baby out with the bath water.
Many reasons
The Big “I” has many reasons for opposing OFC, including the following:
Local insurance regulation works better for consumers and the state-based system ensures a level of responsiveness that could not be matched at the federal level.
Establishing a dual state/federal system would be very confusing to consumers who may have some insurance products regulated at the state level and others at the federal level.
Federal regulation would lead to additional regulatory burdens on agents and brokers and would negatively impact our members’ ability to represent their customers.
The dual structure established by an optional federal charter would complicate solvency regulation which ensures that companies meet their obligations to consumers.
Federal regulation could eventually threaten state premium tax revenue, critical funding heavily relied upon by the states for various purposes.
Federal regulation would unnecessarily infringe on states’ rights and lead to a needless federal bureaucracy.
Federal regulation could have a negative impact on state residual market mechanisms and other state funds which ensure that high-risk individuals and businesses obtain the insurance coverage they need.
Federal regulation could have a negative effect on the surplus lines marketplace that serves such an integral role as the “safety-valve” for the insurance marketplace for hard-to-place risks.
OFC would substitute a dual, federal/state patchwork of regulation for the existing state-by-state system, which would heighten, rather than diminish, regulatory burden on our membership and create confusion for the customers we serve. We strongly oppose a new federal regulator located in Washington, D.C. that will be unable to respond to market differences among the states.
The solution to modernizing insurance regulation is to reform the state-based system through targeted federal legislation, not the creation of a cumbersome federal bureaucracy.
In supporting the SMART proposal, IIABA is advocating an approach that achieves the “goals” of an OFC-uniformity, efficiency, modernization-without creating a new federal bureaucracy or federal regulator. This approach would overcome state-level impediments to reform and build on, rather than dismantle, the states’ inherent strengths-diversity, geographical uniqueness, innovation and responsiveness to consumers-to meet the challenges of a rapidly changing insurance marketplace.
Thomas Minkler, CIC, is president of Clark-Mortenson Agency in Keene, N.H., and chair of the IIABA Government Affairs Committee.