Hearing Underscores Insurance Industry Rift

The Senate hearing Tuesday on insurance regulation has once again spotlighted the divide within the insurance industry between supporters of continued state regulation and proponents of optional federal chartering of insurers.

In defending state regulation, Steven Goldman, commissioner of banking and insurance in New Jersey, said, “The current U.S. insurance regulatory scheme is strong, and our track record is regarded internationally as the benchmark by which other supervisory systems are measured.”

Also speaking for state regulation was Tom Minkler, an independent agent from New Hampshire testifying on behalf of the Independent Insurance Agents and Brokers of America. Mr. Minkler said it is important to maintain the consumer protection strengths of the state-based insurance regulatory system while making needed improvements, specifically in the area of agent licensing.

But Alessandro Iuppa, senior vice president, government and industry affairs at Zurich North America, representing the American Insurance Association, said that today’s marketplace demands “far more dramatic action [for change] than the states alone are able to provide.”

Mr. Minkler reiterated the IIABA’s opposition to OFC proposals. He said that even though it is commonly known as “optional,” current federal legislative proposals to allow for such a federal insurance charter would not be at all optional for agents.

Independent agents represent multiple companies and, under this proposal, presumably some insurers would choose state regulation and others would choose federal regulation, he said.

“In order to field questions and properly represent consumers, independent agents would have to know how to navigate both state and federal systems, therefore making them subject to the federal regulation of insurance—meaning OFC would not in any way be optional for insurance producers,” Mr. Minkler said.

“Even more importantly, ‘optional’ federal charter would not be optional for insurance consumers,” he said. “The insurance company, not the insurance consumer, would make that determination.”

In his comments, Mr. Goldman said “the insurance industry in the U.S. has “grown exponentially in recent decades in terms of the amount and variety of insurance products and the number of insurers.”

The industry now has combined annual premiums exceeding $1.4 trillion, and its share of the U.S. economy has grown from 7.4 percent of gross domestic product in 1960 to 11.9 percent in 2000, he noted.

“Clearly, this is not an industry that has suffered under state insurance supervision,” Mr. Goldman argued. He added that in 2005, while insurance companies were absorbing record losses, they were making record profits, and profits and surplus have continued to increase each year since.

Mr. Iuppa, however, argued that “although some risks and insurance markets remain local or state-based, in general, insurance has become a national and international marketplace in which risks and losses are widely spread throughout the world.”

“Rather than encouraging increased availability and addressing the cost of insurance to cover such multijurisdictional risks,” he said, “the state regulatory system does just the opposite.”

“By artificially making each state an isolated individual marketplace with its own rules and standards, the state-based system constrains the ability of carriers to innovate and has a negative effect on the availability and cost of coverage,” he added.