Through the State Modernization And Regulatory Transparency Act (SMART Act), Congressmen Michael Oxley (R-Ohio), and Richard Baker (R-La.), have made a creative initial proposal to re-energize state insurance regulation based on principles of competition and uniformity. It is important to NAMIC member companies for two primary reasons:
Rejection of the concept of a federal insurance regulator is in line with our long-held belief that state insurance regulation can best be accomplished in the state capitols. Simply put, state policymakers are better equipped to protect consumers, create uniformity, ensure competitive markets and encourage more choices for the insurance-buying public.
Identification of the regulatory impediments to a competitive industry that can best serve consumers. As such, it is a valuable tool in the pursuit of reform in the states.
We are especially pleased with Congressmen Oxley’s and Baker’s recognition that the primary barrier to fundamental reform of the property/casualty industry is rate regulation. This is the cornerstone of NAMIC’s agenda for change in the states. Insurance is an inherently competitive business and does not require a heavy-handed regulatory presence to keep prices affordable. Illinois, with its open competition model and more recently, Louisiana, New Jersey, Oklahoma, Rhode Island and South Carolina, with laws that encourage either flex-band rating or less-approval oversight, prove this point.
The Act’s call for more coordinated, “for cause” market conduct examinations is also timely given the recent efforts of the National Conference of Insurance Legislators (NCOIL) to create a model law that establishes a uniform standard for market surveillance. When states duplicate each other’s examinations, they dilute their potential effectiveness and needlessly drive up compliance costs. It is critical that a system of cause-based exams be implemented to focus regulator resources on companies whose behavior is troublesome.
NAMIC continues to firmly support state regulation of insurance. Since property/casualty insurance addresses issues that can vary significantly from one state to another, maintaining and improving the system’s state-based foundation is the correct public policy response for this segment of the industry. This effort must be viewed realistically as well as cautiously, however; even if enacted in its present form, the SMART Act will not be the final word on insurance regulation from Washington.
As NAMIC noted in its 2003 paper on insurance modernization, “Regulation of Property/Casualty Insurance: The Road to Reform”, despite the best of intentions, federal programs and regulation have a tendency to expand. Pursuit of any federal solution to the problems of state regulation will inevitably invite additional mandates that could serve to undermine the principles of risk sharing on which this industry is based.
It is difficult to accomplish what the authors of SMART have in mind–creating national insurance standards without a national standard maker. This problem is clear in the draft’s elevation of the National Association of Insurance Commissioners (NAIC) to what amounts to a “national insurance legislature” that bypasses duly elected state legislators. There are more than 100 references to the NAIC and its processes in the initial draft of the bill. Reliance on a voluntary organization with mostly appointed commissioners, unduly drawn-out deliberations, little accountability or due process is a significant concern to all parties interested in effective regulatory reform.
Nonetheless, SMART has done industry and regulators a tremendous service by outlining an agenda for reform that will satisfy Capitol Hill. NAMIC strongly suggests that regulators focus their time on working with their respective state legislatures to enact reforms in the areas identified by the Act.
Since 2000, NAMIC has called for collaboration among the NAIC, NCOIL and the National Conference of State Legislatures to study and enact state reforms. Today, that collaboration exists, at least on paper. Now is the time to demonstrate its effectiveness. If such collaboration is ineffective, it is certain the “next” federal proposal coming out of Washington, D.C. will not go to the great and complicated lengths to which the authors of SMART have to preserve the present state framework.
Schmelzer is senior vice president for state and regulatory affairs for the National Association of Mutual Insurance Companies. He is responsible for
the state affairs, legal and regulatory affairs and the recently added public policy divisions. For more information, visit www.namic.org.