U.S. Insurers Paying High Price for “Regulatory Provincialism,” IPI Author Contends |
|
|
|
Written by U.S. Insurance News
|
|
Monday, 03 March 2008 |
Dr. Lawrence A. Hunter isn’t mincing words.
As he sees it, the U.S. insurance regulatory system is “trapped in amber”—a problem that dates back to the New Deal era and needs immediate fixing.
“There is a compelling need to modernize today’s dysfunctional state insurance regulatory system—an elaborately decentralized system of price controls imposed on a state-by-state basis,” said Hunter, senior fellow with the Institute for Policy Innovation (IPI) and author of the report “Trapped in Amber: Bringing Insurance into the 21st Century.”
Hunter believes that two outdated notions have hamstrung the proper regulation of insurance: first, that markets are fragile and in continuous need of government restriction, and second, that a national regulatory system cannot serve consumers’ interests adequately, since the business of insurance is so sensitive to changeable conditions at the state level.
“The two New Deal presuppositions, on which our extensive insurance regulatory industry system rests, not only proved false in case after case, but have been supplanted by more realistic paradigms in virtually every industry other than insurance,” Hunter stated.
The high price of clinging to this outdated system, the author charges, is seen at the global level. U.S. insurers are hampered from operating on the world stage because of restrictive regulation, which overseas competitors do not face. As a result, new business flows nearly exclusively to countries with more “rational” regulatory systems.
Never is the case for an overhaul of the regulatory system more obvious, Hunter believes, than when states flex their regulatory muscles. He cites the example of when Florida placed stringent price controls on property and casualty insurance policies. Carriers responded by canceling many policies and, in some cases, leaving the state completely.
A number of market-based models exist that can satisfactorily reform the current system and provide more efficient regulation of the industry, Hunter thinks, including an optional federal charter (OFC). The OFC would allow insurance companies to choose between a state or federal regulator, or interstate compact arrangements.
“However insurance regulation is modernized, one conclusion is obvious,” Hunter said. “In today’s highly integrated global economy, regulatory provincialism has become not just an anachronism but also a dereliction of the best interests of the citizens of the several states.”
|
