In the Sept. 11 edition of National Underwriter, Joseph J. Beneducci, president and chief operating officer of Fireman’s Fund Insurance Company, argues that optional federal charters will reinvigorate the property-casualty insurance industry. Click here for the full story, and then come back to my blog to comment.
I, frankly, have not made up my mind, but my inclination is to stick with state regulation, period. After all, the federal government certainly has dropped the ball on regulation in the past. And while there are obvious advantages for national and international carriers to having a federal charter, it also opens the possibility of answering to a crusading federal czar with enormous power over the industry--as I mentioned in my blog entry of Sept. 5.
Supporters of federal regulation should also consider the fact that while a Federal Bureau of Insurance (another FBI!) will no doubt start out modestly when it is still on the drawing board, history indicates that it will become a bloated bureaucracy before too long.
Still, I understand the frustration that carriers and multi-state brokers feel in dealing with multiple regulators, and can appreciate the lure of the utopian notion of a single master. I'm just not yet convinced this is the wisest move to make.
Mr. Beneducci is convinced that it is the best course, and makes a strong case. Check out his "Final Say" column and tell me what you think.
Comments (4)
I'd like to commend Mr. Beneducci for an argument well presented and a view that I share. Hopefully some of my added commentary will give you, Sam, a reason to join the many who believe the ONLY ultimate recourse is to have a Federal Czar of Insurance.
The Optional Federal Charter has been bandied about for over a decade, but only in the last 2-3 years has it gained consistent momentum. The efficiencies and the qualitative improvements it would allow are significant, but there are other reasons for there to be a federal insurance expert in D.C. beyond simply providing the watchdog for federal chartered carriers.
One of those "other" reasons is for there to be a voice to explain the complexities and critical economic issues when dealing with terrorism, cat funds, the National Flood Insurance Program, tax issues with catastrophe reserves, and many other technical issues.
Treasury serves as the "insurance" advisors and they are woefully behind in the times and complexities of a global insurance marketplace.
When TRIA was passed in 2002, Treasury did not have even one P&C expert at the time....though they freely admitted to having enough "life insurance" people.
It's time to move beyond a "strictly" state-run system.
Posted by Wayne Salen | September 12, 2006 1:52 PM
Posted on September 12, 2006 13:52
Federal licensing would create two systems--one too many--but great for national programs that might challenge state rules.
Bigger is not better!
State rule needs to be king, and will not if the Feds get involved.
Posted by joe | September 12, 2006 3:00 PM
Posted on September 12, 2006 15:00
Ultimately, I do not believe that federalization of insurance will be positive for the industry.
More recently Congress and federal authorities, called by us, have made overtures into the business. However, for what benefit I see from “positive” acts, I see increased regulation whether directly through the Gramm-Leach-Bliley Act, the Treasury's Office of Foreign Assets Control, or indirectly though the Sarbanes-Oxley Act, and other business regulations.
I agree with the general sentiment expressed by Mr. Beneducci. But at the end of the day, I do not believe that recent federal involvement in insurance has on average helped the industry. I do not expect further regulation, no matter how well intentioned, will be any better.
Having said that, I do believe it is inevitable. Federal authorities are beginning to know how important the insurance industry is to our country. Knowledge is power, and I have not known any governmental entity that does not want power.
We are in the courting stage right now. But changes in party, policy, and the regulations and people that accompany these will follow. I just wonder who we will wake up with once the romance has worn off.
Posted by Kevin | September 12, 2006 6:03 PM
Posted on September 12, 2006 18:03
I completely disagree. Federal regulation of any kind will be harmful to the industry and harmful to the insuring public.
State regulation can be thought of as 50 competing bureaucracies with the resulting variances in competent regulations. That naturally creates a lively and creative marketplace allowing opportunity for any insurer to be successful.
State regulators and legislatures learn lessons from each other. Witness New Jersey.
No one has said what federal regulation would be proposed to look like? What is the specific outline of the federal role in regulating insurers, P&C and L&H? Insurers are favorably positioned to demand specifics before anyone advocates a federal role in regulation.
The expense of state regulation (per se, not counting pools, associations and funds) is but a fraction of what insurers, notably those publically traded, pay to be regulated by the IRS and SEC.
The states and the NAIC will not go away easily, nor should they. Thus all insurers will be mandated the extra expense, publically traded or not, of dealing with the federal elephant in the room.
The industry can do all it legally can to support the streamlining of state regulation (expanded role of interstate compacts, financial oversight delegated to the NAIC, industry conference on catastrophe funding with a possible industry takeover of the federal flood program, which could be regulated by the federal government) with a far greater expense return for all.
Bob Holland
Posted by Robert Holland | September 19, 2006 11:11 AM
Posted on September 19, 2006 11:11