The U.S. Senate Committee on Banking, Housing and Urban Affairs held a hearing on “The State of the Insurance Industry: Examining the Current Regulatory and Oversight Structure.” U.S. Sen. Tim Johnson (D-South Dakota) addressed the need for modernization of the insurance regulatory structure into an optional federal charter (OFC) to establish the United States as an international competitor in the insurance industry. Further, he pointed out the direct correlation between the lack of a central insurance regulator and the economic risk and trends in financial markets, reiterating his point that the United States needs a federally regulated insurance sector.
Some insurance companies and representatives of the American Insurance Association (AIA) have argued in favor of an OFC.
“The reality is that today’s marketplace – both national and international – demands faster and far more dramatic action than the states alone are able to provide,” Alessandro Iuppa, senior vice president of government and industry affairs for Zurich North America, said in his testimony for the July 29 hearing. “As I have mentioned, insurance is no longer the local market it once was. Insurance consumers have exposures across the country and around the globe, so state boundaries no longer match our customers’ national and international business models. And the states – with their differing and sometimes conflicting laws and rules, their sometimes widely varying interpretation of those laws and rules, and their inconsistent and sometimes inflexible implementation – are simply not equipped to handle this increasingly complex and sophisticated marketplace.”
The Automotive Service Association (ASA) has said it supports federal regulation of the insurance industry, but not an OFC. The Consumer Federation of America (CFA) is also leery of the OFC. In attendance at the hearing was CFA’s legislative director Travis B. Plunkett, said there’s a need for changes in insurance industry regulation.
“I am sad to say … that the quality of insurance regulation is weak and declining throughout the nation today,” he said. “We do support legislation that would repeal the McCarran-Ferguson Act’s broad antitrust exemption that insurers enjoy, to end the collusive pricing and other market decisions that are legal today.”
ASA says it also supports repeal of the McCarran-Ferguson Act.
According to Plunkett, if Congress moves to an OFC, it needs to follow a different legislative path than Congress is currently considering. He supports the “Pro-Consumer Approach to National Insurance Regulation: The Insurance Consumer Protection Act of 2003,” which was offered several years ago by Sen. Ernest Hollings of South Carolina and would have adopted a unitary federal regulatory system that would regulate all interstate insurers, leaving states to regulate intrastate insurers.
“The drafters of this legislation … considered the consumer perspective in its design,” Plunkett said.
“The bill’s regulatory structure requires federal prior approval of prices to protect consumers, including some of the approval procedures (such as hearing requirements when prices change significantly) being used so effectively in California,” he added. “It requires annual market conduct exams. It creates an office of consumer protection. It enhances competition by removing the antitrust protection insurers hide behind in rate-making. It improves consumer information and creates a system of consumer feedback.”
To track federal insurance reform efforts, go visit ASA’s legislative Web site, www.takingthehill.com.
