Study: Consumers Could be Hurt by Federal Regulation of Industry

Will Congress wrest insurance regulation from state control? As Congress prepares to debate the matter, big players in the insurance industry are lobbying for the regulatory sea change. But it’s a move that could hurt consumer choice, warns a new study published by the Competitive Enterprise Institute (CEI).

“A poorly designed [federal] system could irreparably harm both insurance companies and their customers,” warns industry analyst Catherine England in “Federal Insurance Chartering: The Devil’s in the Details.” Most state banking regulators and attorneys general oppose federal intervention.

The issue is slated for congressional debate this year, with the Senate Banking Committee already planning hearings.

Proponents of federal regulation argue that states are failing to adequately oversee what has become an international industry. Many point to the dual banking system as a potential model for the insurance industry, whereby banking institutions can choose between state and national charters.

“A well-designed system that includes a federal chartering option could benefit both insurance company owners and their policyholders,” notes England. But “federal chartering is not a panacea,” she adds. Guiding principles for optional federal insurance chartering should include consumer education, state-based guaranty systems, and Treasury Department oversight.