The release last week of a Treasury Department report that endorses optional federal charters for insurance companies and producers, as well as the creation of an Office of National Insurance, has unleashed a torrent of opposition.
State insurance commissioners, state attorneys general, the National Association of Insurance Commissioners (NAIC) and the National Conference of State Legislators (NCOIL) are among those speaking out in opposition to the insurance proposals released on March 31 by Treasury Secretary Henry Paulson. PIA has also expressed its firm opposition to the Treasury proposals.
Here is a brief snapshot of what is being said:
NAIC President Sandy Praeger: “Any change should not put the needs and convenience of Wall Street ahead of the cares and concerns of Main Street. While we certainly support better coordinating and modernizing of their oversight efforts, ‘Modern’ does not mean ‘Federal.’ State insurance regulators are marginalized in this report and, frankly, for our sector it looks more like a solution in search of a problem. State insurance regulators are accused of inefficiencies in oversight, but we need look no farther than Hurricane Katrina to see how well federal solutions serve the nation.”
NCOIL President Brian Kennedy: “It might serve Congress well to look past the likely ruinous proposals of Secretary Paulson, to the very real problems inherent in federal oversight, rather than to speculate about ‘potential inefficiencies’ in the present state-based system,” Kennedy said.
“The Feds’ most recent subprime fiasco, as well as FEMA’s evidenced shortcomings in Hurricane Katrina, and the 1990s savings and loan crisis do not encourage state legislators to greet federal intervention with open arms,” Kennedy added.
Iowa Insurance Commissioner Susan Voss: “Nobody is talking about the consumer.” She said state legislators should know that if the Treasury plan went into effect, in many cases, when a consumer calls their office seeking assistance on an insurance matter, they will have to respond, “Talk to your congressman.” Voss added while there are certainly improvements that can be made to a state insurance regulatory system, “there is no need to implode a system to make sure there are improvements.”
California Insurance Commissioner Steve Poizner: “I cannot support another bureaucratic behemoth out of Washington regulating California’s insurance marketplace,” Poizner says in the statement. “States know their own markets and the needs of their consumers best, so the states’ insurance regulators are best equipped to rapidly respond to changing market conditions. An optional federal charter would unnecessarily centralize diverse, market-based regulations.”
Pennsylvania Insurance Commissioner Joel Ario said problems that have arisen in regulating financial services have “originated from federal regulatory issues and not state issues. To drag the state system into the federal system makes no sense.” Ario said the strength of the state system is that it is accessible to the consumer.
Ohio Insurance Department Director Mary Jo Hudson called the Treasury report “a red herring to hide the failings of the federal system.” She said that “having two systems will result in a race to the bottom.” Hudson pointed to state initiatives such as speed-to-market reform, insurance solvency issues and the Interstate Insurance Product Regulation Commission as evidence that state regulation is working.
Illinois Insurance Director Michael McRaith said the move to an optional federal charter amounts to industry deregulation and would benefit “some of the largest and wealthiest” companies to the detriment of consumers. “It’s important to remember that insurance is not about companies but about consumers, like a single mom working two jobs to pay for child care who gets into an auto accident. Do we want her to have to call the federal government to make sure she gets her claim paid?”
Washington State Insurance Commissioner Mike Kreidler said the Treasury blueprint is a “weak-thinking” call for a dual-regulatory system similar to what precipitated current banking woes. “The idea of putting forward this optional federal charter is in no small part an example of what got us into this crisis that we’re facing today,” Kreidler said.
Wisconsin Insurance Commissioner Sean Dilweg said the problems in the mortgage market are the result of problems with banks. “I don’t see where the federal government stepped in to deal with the problem.” He said the weakness of federal regulation of Medicare Advantage programs by the Centers for Medicare and Medicaid “is just one example of the idea that state regulation can be more effective than federal regulation.”
Maine Insurance Superintendent Mila Kofman: “Any effort to federalize the regulation of insurance at the expense of existing state-based oversight and consumer protections is bad public policy.”
New York State Insurance Commissioner Eric Dinallo: “If the federal government wants to regulate an area, of course it probably has the right to do so. But I think optional regulation leads to regulatory arbitrage, or a race to the bottom. Across the board, state regulators and the industry ought to be proud of what has been a stable and consumer protective regime.”
North Carolina Department of Insurance spokesperson Chrissy Pearson said the current system is needed to protect the state’s consumers. For example, North Carolina’s coastal insurance issues are much different than those in other regions of the country, she said. “We talk about balancing what's right for insurance companies with important consumer protections,” Pearson said. “It’s easier to have that balance on the local level.”
Connecticut Attorney General Richard Blumenthal: “I will strongly fight any effort to pre-empt or reduce state authority — including insurance regulation," The federal government's abject failure in banking industry oversight should prompt skepticism about proposals for federally chartered insurance companies, subject only to federal regulation.”
Connecticut Insurance Commissioner Thomas R. Sullivan worried that insurers would “cherry-pick” the least restrictive regulator, “which I submit to you is the least consumer-oriented regulator. That's just a way to circumvent or seek less regulation.”
J. Robert Hunter, Insurance Director for the Consumer Federation of America, said that when he held the post of federal insurance administrator, which no longer exists, the White House had assigned him the task of, “in effect, being the OIO that Treasury now proposes. The industry laments the lack of such a national insurance expert, but it was the industry that lobbied the Reagan administration to stop FIA [Federal Insurance Administrator] from performing the role and also ended the FTC [Federal Trade Commission] involvement in insurance analysis.”
“Why do they want back what they once opposed? Simple. They seek to gut consumer protections. The Treasury proposals for an OFC/deregulation regime as part of a ‘solution’ to the ills caused in mortgage lending lack of oversight is laughable.”
NAIC Consumer Representative Kevin Lembo: “This industry-driven call for an optional federal charter moves regulation and intervention further away from consumers, leaving them with only an 800 number to protect them from abuses in the insurance market. The only one to benefit from such a move is the insurance industry.” Today, Lembo said, consumers can vote against weak insurance commissioners, or vote against the governors who appoint those commissioners. “Once insurance is lost in the Washington abyss, who will we hold accountable?”
David A. Sampson, president and CEO of the Property Casualty Insurers Association of America (PCI): “We must take care to preserve and respect the prerogatives of the states, which by law and long-standing practice are the acknowledged regulators of the insurance industry. Their experience in regulating our business is invaluable and would not be easily replicated at the federal level. Markets differ greatly from state to state and region to region, and this fact would make federal regulation problematic in its own way.”
April 8, 2008