We’re in Good Hands With State Regulators

Editor’s Note: The following commentary originally was addressed to the New York Times in response to a published opinion expressed by Allstate CEO Tom Wilson advocating federal regulation of insurance.

In a contributed column that ran in the New York Times on April 16, Wilson suggested that states are not equipped to effectively regulate insurance companies, stating, “[I]nsurance companies are not regulated by the federal government. Instead, they are regulated by individual states, which lack the expertise to properly oversee rapid innovation or systemic risks.”

Contributing to the current economic volatility have been ideologically driven initiatives not premised on fact or consumer protection.

Financial institutions pushed for deregulation to promote “innovation” while fundamental consumer protections, like solvency, were dismissed as obstacles to profit.

With this in mind, the myth-laden pleas of an otherwise prudent Tom Wilson, CEO of Allstate, in search of federal regulatory relief should be viewed cynically.

States have always regulated insurance companies. State regulators enforce rigorous solvency standards embedded for years with nationally stringent stress-tests and capital requirements. Fortunately for insurance customers — policyholders and claimants — the U.S. insurance industry has not suffered the collapses that resonate through other sectors.

State regulatory standards mean that families and businesses, having shifted risk to an insurer, retain the security that each sought when a policy was chosen and premium paid.

Even if an insurer were insolvent — a rarity — state receivership and guaranty fund systems prioritize payouts to consumers over commercial creditors, a result vastly different from bankruptcy.

Supervising over 7,000 insurers and the world’s most profitable insurance marketplace, state insurance regulators annually reply to more than three million consumer inquiries, often when a company fails to pay a claim. Certainly, we prefer that our elderly parents not encounter a federal bureaucratic maze when an insurer fails to pay for a simple car accident.

Despite the prodigious incompetence of its non-insurance units, AIG operated 71 U.S.-based insurers that continue to meet all obligations to consumers. As the poster child for regulatory reform, AIG underscores why state insurance regulators welcome collaborative integration with a federal financial systemic regulator.

By remaining local, state insurance regulation evolves without caving to the whimsical profit fantasies that drove AIG and others to taxpayer support.

Federal bailouts and loans painfully reveal the costly outcome of failing to put consumers first.

Mr. Wilson’s industry deregulation ideal is not viable.

Families, small businesses and large employers — the engines of our economy — are, and must remain, priority one for insurance regulation.