Coalition Seeks a Federal Insurance Regulator
By JOSEPH B. TREASTER
New York Times
June 15, 2005
Frustrated by the sluggishness and inconsistencies of state regulation, 135 insurance companies, agencies, banks and financial services trade groups urged Congress yesterday to establish a federal regulator for the insurance industry.
In a letter to Senators Richard C. Shelby, the chairman of the Senate Banking Committee, and Paul S. Sarbanes, the ranking Democrat on the panel, the insurers and bankers complained of the burden of having to comply with regulators in 50 states, saying it was a very costly system that "provides no advantage to the consumer."
The shortcomings of state regulation have been underscored in the last year by investigations that have revealed improper practices - from bid-rigging to manipulating share prices - by some of the largest insurers and brokers. The first disclosures of improprieties came from the New York State attorney general, Eliot Spitzer, who has gone on to develop the biggest cases.
The proposal would not eliminate state regulation but would permit companies to choose whether they wanted to be regulated from Washington or their home states. It was expected that adoption of the plan would significantly reduce the influence of state regulators.
The letter, endorsed by giants in the industry including the American International Group, Allstate, State Farm, Prudential Financial and New York Life, was the strongest effort to date by the insurers in a drive that has been gathering momentum. While many insurers have been quietly calling for federal regulation, they have been reluctant to take the kind of stand spelled out in the letter to Congress for fear of alienating the state regulators who now hold sway over their businesses.
The letter was blunt. "After literally decades of effort and despite good intentions," it said, "state regulators have been unable to provide an efficient, uniform regulatory structure."
Yet the appeal for a federal regulator is by no means uniform. The National Association of Insurance Regulators has been fighting federal regulation, and the largest group representing agents, the Independent Insurance Agents and Brokers of America, said in a statement that federal regulation "is not the best or right solution for regulatory reform." The agents worry that they would be forced to obtain both federal and state licenses and to cope with a new range of rules from Washington.
The House has been considering a plan in which the federal government would set standards for insurance with the application of those standards remaining with the states.
Both consumer advocates and the state regulators oppose the plan. The consumer groups agree that state regulation is deficient, but they are concerned that to insurers and bankers, federal regulation is another way of saying deregulation. "If the federal government was a little less laissez-faire, the insurers and banks wouldn't be doing this," said J. Robert Hunter, insurance director at the Consumer Federation of America.
The letter was distributed by Kevin McKechnie, an associate director of the American Bankers Insurance Association and the chairman of a coalition of bankers, insurers and agents backing federal regulation. Banks have become major sellers of the annuities of life insurance companies, and they have increasingly offered commercial insurance and coverage for homes and cars.