How Democratic Congress might approach federal insurance regulation

News Currents

The Professional Liability Underwriting Society (PLUS) held its international conference in Chicago in late 2006. Moderating the panel was television journalist Forrest Sawyer, a 24-year veteran of ABC, CBS and MSNBC, who targeted his questions to insurance leaders and the Illinois state regulator on the debate over who should regulate—the federal government or the states. Noting that the Democrats now control both Houses in Congress, Sawyer sought input on how that change would impact whether Federal regulation would become a reality.

Sawyer: With a new Democratic majority in both Houses of Congress, what’s your take on federal regulation and where it is headed?

Sullivan: As the industry grows and expands, as we globalize, as all business moves more rapidly all the time, frankly some of the states are having a difficult time adapting to those changes. Those factors give rise to a lot of things that are happening in Washington D.C. that are beginning to have a significant impact on our business. No matter whether you come down on the state side, or the federal side, or somewhere in between, you do have to watch carefully what’s happening in Washington D.C., because they are very active and will probably become even more active in the months ahead.

McRaith: There’s not a lot of nuance to my position. If we are concerned with the profitability of the largest carriers in the country—federal regulation is a great idea. If we’re concerned about solvency, consumer protections: it’s not something we should consider seriously. The last thing we want is a dual regulatory system where the courts become the “de facto” regulators. That’s exactly what we would have and that’s exactly what we don’t want.

Sawyer: Will the changes in Congress have a small or large impact?

Leib: I just don’t think the issues that we’re here to talk about fall predictably down party lines. You might think that the Democrats are more inclined to favor centralized federal regulation of the industry. I don’t think that is the case. The proponent of the actual federal charter regulation is John Sununu, a Republican. Mike McRaith is from a Democratic platform. So I don’t think it’s easy to predict the impact of Congressional shifts on our business.

Bowden: My own guess is that Leib is probably right. I don’t think an optional federal charter is going to happen quickly because the Democrats have more power. But I do think it doesn’t take much to imagine another crisis, whether it’s a hurricane season like that last one or another terrorist attack before somebody realizes that the federal government has literally no information about the insurance industry. Yet, Congress has a very substantial interest in both natural disasters and terrorism—that combination that could be very volatile at a federal level.

Sawyer: Why isn’t what was just said an argument that the Democrats should press for more involvement in the insurance industry?

McRaith: In terms of where I think there will be a shift, first of all, I think it will be on a state level, not the federal level. Elliott Spitzer is now the governor of New York. New York Attorney General Cuomo is going to be every bit as aggressive prosecuting cases in the industry as Attorney General Spitzer was. Interestingly in California, John Garamendi, a noted and passionate consumer advocate, is now the lieutenant governor and replaced by a Republican. So I think that’s going to be interesting changes more on a state level. At the federal level I’m not so smart as to speculate. But I would say that money is ultimately bipartisan. There is a lot of money in the federal charter bill.

Sawyer: From an insurance industry standpoint, does this look like too much meddling and limiting the ability to do business?

Sullivan: The biggest problem for us is that when you take consumer protection too far insurers begin to get hamstrung in the ability to provide products that insureds are seeking. This is where problems begin. That doesn’t mean that consumer protection isn’t important. It’s tremendously important. One of the great strengths of state regulation is that regulators can look at local issues and react quickly.

Dodell: I think there is nothing wrong with it(state system). I do not think the issue is so much who is doing the regulating, but how it is being done. In the environment that a lot of us practice in—we have to be fast both to protect our own capital and also to get products to our customers quickly. We need an efficient system, and the current structure makes it very difficult for us to get products out to the marketplace quickly.

Sullivan: Automobile and homeowners constitute about 50 percent of premium volume in the country. However, many of us have handled relatively few automobile and homeowners coverages. Most of us are heavily involved in dealing with commercial coverages of one sort or another. If you are dealing with a risk that has locations in multiple states, the way things are set at the moment, it is impossible to write a multiple state risk and comply with all the laws because the laws are so contrary. Insurers end up breaking the law somewhere.