Insurance panel discussions are usually fairly mundane and predictable affairs, but in what might be the first real burst of spontaneity in the history of such events, the members of one panel stood up to publicly challenge the assertions of those on a subsequent gathering, with regulators and insurers going at it during the recent Joint Industry Forum. It was one of the most honest and productive exchanges I have ever seen between the two sides. I just wish there were more like it.
To read all about the clash, click here.
As reported by our own Susanne Sclafane, here are some of the highlights:
Allstate CEO Thomas Wilson set off the fireworks by addressing a question regarding the lack of product innovation by saying that personal lines insurers are thwarted, in part, by a “regulatory environment that is so arcane you can’t get anything done.”
That prompted South Carolina Insurance Commissioner Scott Richardson to step up to an audience microphone and challenge the insurers to tell him exactly what regulators could do to cease being archaic.
Mr. Richardson also demanded to know why “800-pound gorillas” like Allstate are pushing for federal government solutions to catastrophe insurance problems.
The South Carolina commissioner, participating on a prior panel consisting of regulators, had warned against letting Washington into the insurance business. (Click here to read all about that panel.)
Large personal lines carriers talk about such solutions “because we’re the ones on the hook,” Mr. Wilson said.
“But you did that voluntarily,” Mr. Richardson shot back.
“Yes sir, we absolutely did. But we recognize that the risk is too great for the return we’re getting,” Mr. Wilson said.
Mr. Wilson urged regulators to loosen the reins and “to believe in the customer.”
“It’s worked in every other industry. If you let consumers choose, they will get themselves educated, they will understand what to do,” he said.
Mr. Richardson—a former independent insurance broker, and thus no enemy of the industry—responded that such a Utopian approach is not possible in coastal states, where two or three insurers write 40-to-50 percent of the business.
“You’re saying, ‘Let the customer walk.’ If Allstate wants to get a 100 percent rate increase, I should give it to you and Johnny Lunchbucket will go to somebody else,” he said. “That sounds good in theory, but I’m not sure there’s enough capacity in this room that would come sucking in [to] take the business [you] leave.”
Then ACE CEO Evan Greenberg got into the act, calling for a single, nationwide set of uniform regulations.
“Just look at the number of [National Association of Insurance Commissioners] model acts that have been passed where they’re to be adopted by all the states…How many of them have in fact been done?” he asked. “It’s a broken system and it’s antiquated.”
NAIC President Sandy Praeger got up to respond, although she was more sympathetic--even refreshingly apologetic--than Mr. Richardson.
“We’re…taking a very hard look at the way we develop models and in a sense set ourselves up to fail,” said Ms. Praeger, who is insurance commissioner of Kansas. “I think there are some areas where we are going to have to have assistance from Congress to get to the uniformity."
She said insurers and regulators should work as partners and not adversaries in getting good products to market. “We’re moving in a direction that I think is going to bring about some modernization” while preserving a state-based system that instills consumer “confidence in the products you’re selling.”
I wish we could have more such frank exchanges, with both sides stating how they really feel and putting all their cards on the table. Maybe we'd actually accomplish some meaningful reforms.
Comments (7)
Hee's a glaring example of the way state regulations add unnecessary complications and increase insurer cost.
Most states have anti-fraud initiatives, and require anti-fraud warnings on applications and claim forms.
Because states require different wordings, we are forced to produce some 20-odd versions of otherwise-identical applications--with resulting costs, confusions and agent use of wrong state versions.
How many applicants appreciate the difference in these wordings???
Posted by M. Harriet Ladd | January 23, 2008 11:38 AM
Posted on January 23, 2008 11:38
Many banks switched to federal charters to avoid stricter state laws. Look at the path that has led us down.
Posted by Gloria | January 23, 2008 12:55 PM
Posted on January 23, 2008 12:55
I'm glad to hear about the outcome of this forum. I also have high hopes for Sandy Praeger as the new NAIC president.
Uniform regulations would not only benefit large carriers. Smaller brokerages and agencies would possibly reduce costs associated with licensing and tax reporting.
I don't think the recently proposed OFC is the answer to our regulatory issues. However, I agree with those who are frustrated with our flawed state-based system.
Let's allow the NAIC a little more time to get the states on board with uniformity before we hand ourselves over to federal regulation. I think to do that would be equivalent to exchanging one set of problems for another.
Posted by Lynn | January 23, 2008 3:28 PM
Posted on January 23, 2008 15:28
A major problem with state-by-state regulation is the existing inventory of 51 "variations on a theme" laws. Even if a model law is adopted, a minor tweak by just one location can eliminate the possibility of one set of coding to comply.
Some examples will provide detail.
First, consider privacy laws--a dozen or so states have inconsistently adopted the 1982 NAIC model privacy law, and then all states passed some variation of the 1996 federal Gramm-Leach-Bliley law. All of the states with the 1982 model just rolled on GLB privacy on top. California has at least three privacy laws that apply to P&C insurance, with separate notice requirements.
(A related major problem with state-by-state regulation is the expense to every company to monitor the legislative sessions and insurance department regulations, which is an entirely new consideration . . . AND expense for insurers.)
Second is complaint handling: Maryland (27-614) has exacting consumer protection regarding auto policy rate increases. Notices must meet explicitly described and prescribed standards developed over decades of bureaucratic tinkering. If this is the right approach, why haven't all states adopted it? If it is the wrong approach, why does Maryland have it?
Third is auto policy surcharges. Arizona allows auto insurers to surcharge when a dollar threshold is reached--but the threshold is subject to float every year as it is tied to the Consumer Price Index, AND it is rounded to the nearest $10 (20 § 1631E).
One privacy notice could be used, but it would mean granting all insureds in all locations the same rights as required by California.
One method of handling premium increase notices could be used, but it would require the company to provide non-Maryland residents with more rights than required.
One method of surcharges CANNOT be used because the threshold amount varies by state. It may work great for insurers that have stand-alone systems by state. But the national carriers don’t have stand-alone systems, because they are costly and inefficient.
Examples such as this point out the lack of uniformity from state-to-state, which drives insurers’ expenses up based on systems coding and validation; having to develop, file, and maintain different forms sent to insureds; training for employees based on the variations; and underwriting and claim processing differences.
In turn, higher expenses caused by regulatory variations cause higher premiums for insureds and thus, the comments about state-based regulation being archaic.
Posted by Uniformity | January 23, 2008 4:13 PM
Posted on January 23, 2008 16:13
Just wanted to second the earlier post re: Uniformity.
The lack of uniformity in regulation across the states imposes significant costs to all consumers, as carriers and agents spend money to comply with the myriad of rules and regulations, that while many are similar in spirit, are quite different in execution.
Why does Uninsured Motorists coverage need to work so differently across all states? Why does each state need to have its own residual market (each designed and administered separately, mind you)? Why are the policy cancellation rules and procedures so different across states?
These items can be easily standardized under one regulator and reduce costs to consumers.
I really don't see any way 51 state insurance commissioners and 51 state legistlatures will ever achieve the needed level of uniformity, no matter how good their intentions.
Posted by More Uniformity | January 24, 2008 1:02 PM
Posted on January 24, 2008 13:02
“We’re one country. There should be one uniform set of regulations,” the CEO of a Bermuda insurer tells the Forum.
But this particular advocate will also tell you that his company is domiciled in Bermuda because his is a global business. And if we collapse from 50-odd regulatory regimes to one, he'll still have to work with 130 or so others.
Which standards from which states do the one regime avocates propose to apply universally?
Best practices and adequate protection will be the answers. But, what are those practices and protections? Best practices for who?
We hear lots about over-regulation. But, with 50-odd regimes to choose from they can't all be over-regulating everything.
Which states' consumer protection or trade practice standards do the advocates think are too loose? Which states' financial oversight needs tightening? Which sates' market conduct enforcement is too loose? Which states' penalties for violating trade practice standards are too low?
The only common regulatory goal I hear from the advocates is "less."
Why is diversity good for everyone and everything except regulatory regimes?
Why is it that the advocates can't innovate unless they can launch nationwide simultaneously? How is it that the industry could innovate and launch state- by-state yesterday, but can't do it today?
What portion of the advocates' expense dollars would actually be saved (and shared with which of the advocates' customers) if they only had to conform to and comply with a single regulatory regime?
Do we really need a single national regulatory regime? Or, do we have a few industry segments that have a few problems best solved uniformly and a lot of people trying to ride coat tails?
None of these are qestions that I've heard satifactory answers to.
Posted by Skeptical | January 24, 2008 6:18 PM
Posted on January 24, 2008 18:18
So, until a complete, fool-proof solution is proposed, the broken status quo is better than change? If that is the standard to be met, then may I suggest that as an industry we will get the regulation we deserve.
Single-state insurers are probably perfectly happy, but national insurers are not at all happy with 51 sets of rules on just about every aspect of business. The examples given so far don't even begin to tell the story.
Just think of all the processes involved in selling a policy, settling a claim, cancelling a policy, or responding to a complaint. Take that times 51, and throw in multiple variations depending on the line of business. And for good measure, toss in free trade zones and low-cost counties, so that the state has two separate sets of rules also.
That was the beauty of the proposed SMART Act in Congress (which would have set federal standards for state insurance regulators to follow)--it would force uniformity. And that is the primary appeal of the OPTIONAL federal charter.
Posted by Ostrich or Pioneer | January 25, 2008 2:13 PM
Posted on January 25, 2008 14:13