Congressional Hearing Again Targets Regulatory Reform
National News • October 31, 2007
No one argues the need to revamp the regulatory structure of the insurance industry, but just how to reform regulation remains the big question for legislators considering the issue. Some in the ...
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Subject: State Regulation Needs to go
Posted On: November 1, 2007, 6:23 am CDT
Posted By: Observer
Comment:
I strongly disagree with you both. The cost and complexity associated with the compliance with 50 different regulatory masters results in huge inefficiencies and overhead costs that are ultimately passed on to insurance consumers.
Companies and rating bureau's have to develop rating plans and policy forms that accomodate 50 different masters. This means that actuaries, lawyers, accountants, and programmers spend endless hours developing, maintaining, and programming 50 products that in theory should be fairly standard, but instead vary in miniscule ways that don't provide meaninful protection to consumers but impose significant costs on the system.
Just look at the corporate structure of a typical property casualty company to see an example of this. A large insurance carrier will often have 20 to 30 legal entities under the corporate umbrella, mainly to work around and comply with the patchwork of inconsistent and often-times downright contradictory regulatory stances of the different states. These compliciated corporate structures, although necessary in today's regulatory environment, impose significant additional burdens on companies (and ultimately consumers) and restrict the flexibility and mobility of capital to areas of need, which again, ultimately harms consumers.
Also, the quality and education/training level of the average state department of insurance employee is far inferior to those found in equivalent federal agencies such as the Federal Reserve, SEC, or Federal Trade Commission. Due to the political nature of many state insurance departments and commisioners, many departments have fundamental mis-understandings of the economics of insurance that further restrict insurance companies, reducing choice and availability to consumers.
Furthermore, the state regulatory system doesn't fit today's more mobile population or larger multi-state commercial risks. It is ridiculous that a person who moves from one state to another must find another insurance agent because their agent isn't licensed in their new state. A relationship with an insurance agent is best if it is stable and long-term, not transient and ever changing. Can you imagine if you had to change stock brokers everytime you moved from one state to another? Also, for large corporate insured's with business locations in multiple states, it is hard to get coverage for a given line of business (such as Workers' Comp) with a single policy. Often times, multiple policies must be written on multiple legal entities (with the intrusion of the occasional monopolistic state fund) to provide coverage for all their employees/locations across severl states. These multiple policies increase administration costs, errors & ommisions risk, and in general are just a PITA for everyone involved.
Lastly, the state regulatory system is ill-equiped to handle the national issues that effect large multi-state insurance carriers such as Terrorism, Credit for Alien Re-insurance, and Risk Based Capital. The insolvency process is a joke, with many claimants of insolvent insurers having to wait almost two decades before receiving any payment for their claims because few state insurance departments have the resources or expertise to administer such complicated matters.
IMO, most opponents of Federal Regulation oppose it because it means increased competition to many single state and regional carriers and agents. This is a poor reason. The best way to weigh the merits of Federal Regulation is through the impact on the consumer. Through that lens, I think the argument is clear. Today's state based regulatory system is bloated, overly bureaucratic, inefficient, and most damning of all, doesn't provide adequate protection to consumers, all at an extrodinary cost. Countrwide in 2006, insurance customers paid over $12 billion in premium tax (just P&C, not including life/health) and IMO are getting a pretty raw deal for their dollar in terms of regulatory service.
The existing state system is so incredibly bad, that pretty much any federal alternative, no matter how poorly conceived, would be better.
Subject: State Regulation Needs to go
Companies and rating bureau's have to develop rating plans and policy forms that accomodate 50 different masters. This means that actuaries, lawyers, accountants, and programmers spend endless hours developing, maintaining, and programming 50 products that in theory should be fairly standard, but instead vary in miniscule ways that don't provide meaninful protection to consumers but impose significant costs on the system.
Just look at the corporate structure of a typical property casualty company to see an example of this. A large insurance carrier will often have 20 to 30 legal entities under the corporate umbrella, mainly to work around and comply with the patchwork of inconsistent and often-times downright contradictory regulatory stances of the different states. These compliciated corporate structures, although necessary in today's regulatory environment, impose significant additional burdens on companies (and ultimately consumers) and restrict the flexibility and mobility of capital to areas of need, which again, ultimately harms consumers.
Also, the quality and education/training level of the average state department of insurance employee is far inferior to those found in equivalent federal agencies such as the Federal Reserve, SEC, or Federal Trade Commission. Due to the political nature of many state insurance departments and commisioners, many departments have fundamental mis-understandings of the economics of insurance that further restrict insurance companies, reducing choice and availability to consumers.
Furthermore, the state regulatory system doesn't fit today's more mobile population or larger multi-state commercial risks. It is ridiculous that a person who moves from one state to another must find another insurance agent because their agent isn't licensed in their new state. A relationship with an insurance agent is best if it is stable and long-term, not transient and ever changing. Can you imagine if you had to change stock brokers everytime you moved from one state to another? Also, for large corporate insured's with business locations in multiple states, it is hard to get coverage for a given line of business (such as Workers' Comp) with a single policy. Often times, multiple policies must be written on multiple legal entities (with the intrusion of the occasional monopolistic state fund) to provide coverage for all their employees/locations across severl states. These multiple policies increase administration costs, errors & ommisions risk, and in general are just a PITA for everyone involved.
Lastly, the state regulatory system is ill-equiped to handle the national issues that effect large multi-state insurance carriers such as Terrorism, Credit for Alien Re-insurance, and Risk Based Capital. The insolvency process is a joke, with many claimants of insolvent insurers having to wait almost two decades before receiving any payment for their claims because few state insurance departments have the resources or expertise to administer such complicated matters.
IMO, most opponents of Federal Regulation oppose it because it means increased competition to many single state and regional carriers and agents. This is a poor reason. The best way to weigh the merits of Federal Regulation is through the impact on the consumer. Through that lens, I think the argument is clear. Today's state based regulatory system is bloated, overly bureaucratic, inefficient, and most damning of all, doesn't provide adequate protection to consumers, all at an extrodinary cost. Countrwide in 2006, insurance customers paid over $12 billion in premium tax (just P&C, not including life/health) and IMO are getting a pretty raw deal for their dollar in terms of regulatory service.
The existing state system is so incredibly bad, that pretty much any federal alternative, no matter how poorly conceived, would be better.