American Consumer Institute Report Calls for Consideration of Optional Federal Charter |
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Written by U.S. Insurance News
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Friday, 23 March 2007 |
A new report from the American Consumer Institute about insurance regulation concludes that consumers are adversely affected by “duplicative and unnecessary” state regulations. The institute believes that such regulations increase premiums, reduce competition, and discourage innovation in service. In addition, these regulations often redistribute insurance costs among consumers, thereby raising premiums for some consumers in order to subsidize high-risk consumers.
A new report from the American Consumer Institute about insurance regulation concludes that consumers are adversely affected by “duplicative and unnecessary” state regulations. The institute believes that such regulations increase premiums, reduce competition, and discourage innovation in service. In addition, these regulations often redistribute insurance costs among consumers, thereby raising premiums for some consumers in order to subsidize high-risk consumers.
The report calls for ending current state regulatory systems. It states: “This study finds the extent of today’s insurance regulation cannot be justified based on economic theory. Whatever the original economic justification for insurance regulation was, it is no longer valid today.”
The report examines the effects of regulatory reform, including de-regulation, in other industries, such as telecommunications, railroads, trucking, and airlines. It also suggests that consideration should be given to an Optional Federal Charter. The report further states, “. . . in light of the huge consumer benefits that resulted from regulatory reform in other industries, and given the absence of rigorous cost/benefit analysis of insurance regulation, it appears that consumers are losing as a result of an onerous and duplicative state system of regulation. Reforms and modernization of state regulations, including permitting an Optional Federal Charter, can maintain reasonable consumer safeguards, while encouraging market efficiency, service innovation, lower industry costs, and lower prices for consumers.”
The 24-page report, entitled “Insurance Regulation: Market or Government Failure?” is available on the institute’s Web site (www.theamericanconsumer.org).
The study follows several recent studies that offer similar findings about insurance regulation. Last month Sen. Charles Schumer (D-N.Y.) and New York City Mayor Richard Bloomberg issued a report, and another study was released this month by the Commission on the Regulation of U.S. Capital Markets. Both studies recommended consideration of an Optional Federal Charter, as did lawmakers and professors at the recent Networks Financial Institute summit at Indiana State University.
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