How Far Does a Federal Insurance Charter Go?Posted 3/26/2004
By Robert L. Redding, Jr.
The Automotive Service Association has been monitoring the U.S. Congress' review of insurance regulation for the past several years. The U.S. House of Representatives in particular has continued to push the concept of insurance regulatory reform. Rep. Richard Baker, R-La. - chairman of the Financial Services Committee's Capital Markets, Insurance and Government Sponsored Enterprises Subcommittee - has led the effort to examine the state of insurance regulation.
Chairman Baker has held numerous public hearings and provided incentive to the U.S. Senate Commerce Committee to also conduct a hearing on the same issue. U.S. Commerce Committee Chairman John McCain, R-Ariz., chaired a hearing with a diverse group of witnesses on the same issue. Is Congress alone in its interest in changing the current system of insurance regulation? We think not.
ASA expects more hearings in the second session of the 108th Congress. Will this necessarily indicate major insurance regulatory reform? Chairman Baker, in a recent Indiana State University speech on regulatory reform, commented: "I do believe, however, that some measure of uniformity is a good thing for consumers."
Chairman Baker was quoted in CongressDaily as stating, "Perhaps by the time we conclude the planned hearings for this year ... we may actually have a proposal to bring to the Committee for some sort of consideration, but there's no fixed time line."
This "incremental" approach is probably the only way to address insurance regulatory reform. More aggressive attempts in years past have produced little results. The last major attempt was by then U.S. House of Representative's Judiciary Committee Chairman Jack Brooks, D-Texas. Brooks attempted to move insurance reform on then President Bill Clinton's health care legislation. This reform package failed.
Segments of the insurance industry have shown interest in reforming the life insurance market. State-by-state regulations do not vary in the life market to the degree they do in the health, property and casualty markets. The Congress, during the hearing process, has not indicated that property and casualty markets should be excluded. Collision repairers should note that broad reform might be possible at some point in the next Congress; if not, clearly any "foot in the door" for uniform regulatory reform of the insurance industry could be helpful to the collision industry.
Chairman Baker has not been alone in his interest in federal regulation of the insurance industry. In addition to other members of Congress, the American Insurance Association (AIA) has indicated support for federal regulation. AIA has disclosed in public comments:
"Insurance is regulated by 51 different jurisdictions that focus on government price and product controls. These regulatory tools are premised on economic theories that have been broadly discredited both here in the United States and around the world over the last 50 years. Such a 'command and control' system requires both price and product to be reviewed by the regulator before they are 'allowed' to enter the marketplace. Such an approach stifles competition and creativity, reduces consumer options, creates cross-subsidies among consumers, and weakens incentives for improving safety and loss control."
AIA continued in comments: "In addition to price and product controls, there is also substantial inconsistency among state regulatory and legal requirements. The inefficiencies associated with insurers' having to comply with multiple jurisdictional requirements add needlessly to the cost of insurance, and ignore consumer demand for insurers to quickly bring new products to market. As a result, the current insurance regulatory system is stressed and dysfunctional."
For a variety of reasons, some views in the insurance industry are changing with regard to state regulation. Although dramatic property and casualty reform will be more difficult, the collision industry would be remiss not to consider the opportunities of federal regulation. This is an old debate in the industry, but should be revived in light of congressional interest and proposals emerging from the insurance industry.
The National Association of Independent Insurers (NAII) and the Alliance of American Insurers have recently merged. NAII has opposed federal regulation of insurance in the past. This is not likely to change after the merger is complete.
Should federal intervention proceed beyond life insurance markets? A limited federal charter might be in the offing prior to the end of the 108th Congress. ASA's collision leaders will review options as Congress moves to make substantial changes in insurance regulation.
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