NAIC President Reasserts Her Opposition to Optional Federal Charter |
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Written by U.S. Insurance News
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Friday, 22 February 2008 |
The president of the National Association of Insurance Commissioners (NAIC) hasn’t changed her mind one bit. In fact, she’s put into writing her opposition to an optional federal charter.
The president of the National Association of Insurance Commissioners (NAIC) hasn’t changed her mind one bit. In fact, she’s put into writing her opposition to an optional federal charter (OFC), restating the strengths of state-based regulation.
Sandy Praeger, NAIC president and Kansas Insurance Commissioner, expressed her concerns in a letter to Marc Racicot, the former governor of Montana who is now the president of the American Insurance Association (AIA). Racicot had recently expressed his opinion that state insurance regulators should reconsider their opposition to the charter.
Praeger’s response to Racicot argued that because property-casualty insurance is a local product, with local issues, it requires local regulation instead of federal oversight. She included three main points of opposition to the proposed legislation, the National Insurance Act, which would create a federal charter:
- The federal government couldn’t handle the workload—resulting in less protection for the consumer.
Praeger writes, “There are presently more than 11,000 individuals working in state insurance departments across this country who help to protect insurance consumers. It takes quite an imagination to assume the Treasury Department could assume even a partial role in regulating insurance without creating a huge bureaucracy. The plain and simple truth is optional federal chartering would create a new federal bureaucracy from scratch and allow insurance companies to ‘opt out’ of comprehensive consumer protections and state oversight.”
2. Federal oversight would result in far less regulation.
Praeger writes, “[A]llowing insurers to pick their regulator threatens a regulatory ‘race-to-the-bottom.’ This scheme would be especially dangerous in property/casualty insurance, where families and businesses faced with a storm, fire, illness, or injury often rely on a hands-on regulator to make insurers keep their promises and to help rebuild quickly after an unforeseen disaster. The push for an OFC is, in reality, nothing more than a call for little or no regulation.”
3. Funding of the OFC would be problematic.
Praeger writes, “In 2006, the states collected more than $16.7 billion in revenues from insurance sources. Of this amount, $1.2 billion—roughly 7.2 percent—went to regulate the business of insurance, while the remaining $15.5 billion went to the states’ general funds for other purposes. This begs the question: How would any new federal bureaucracy be funded, if not by state premium tax dollars? Surely you are not proposing that the AIA’s member companies would be willing to pay an assessment to the federal government, in addition to the premium tax they would continue to pay to their domiciliary state. That would undoubtedly result in higher premiums for American consumers.”
Praeger’s letter, which goes on to point out problems with federal regulation of the banking industry and financial markets, is available in its entirety on the NAIC Web site.
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