The Independent Insurance Agents & Brokers of America ) does not support a proposal to establish an optional federal charter (OFC) for insurance regulation, but continues to support the proposed State Modernization and Regulatory Transparency (SMART) Act legislation, expected to be introduced in the House this summer, according to a statement released today.
The association released the statement in response to a letter from several financial services companies and state banking associations to the Senate Banking Committee in support of OFC, saying the OFC is not the best or right solution for regulatory reform in the industry.
“While the letter leaves the impression that many insurance companies support federal regulation, it has been our experience that the vast majority of insurance companies, and an overwhelming number of agents and brokers, oppose an optional federal charter for the insurance marketplace,” said Charles E. Symington, Jr., Big “I” senior vice president for government affairs and federal relations.
Proponents of OFC claim the charter would not supplant state regulation, however, the nation’s largest association for independent agents and brokers believes such an occurrence would be inevitable, and would ultimately be a detriment to consumers and producers alike.
“Some in the industry attempt to argue that an optional federal charter preserves states’ rights and would leave the state system intact,” Symington said. “But there are huge problems with OFCs and federal regulation. For example, the latest industry OFC proposal would force the state system to backstop federal chartered insurers – this is an unprecedented intrusion on state solvency regulation and potentially a huge detriment to consumers. There is nothing optional about that.”
“Supporters of OFCs also argue that an optional federal charter would preserve state premium taxes and that such revenue would continue to flow into state treasuries as they do now. If the federal government begins regulating the insurance industry, it won’t take long for this revenue stream to be diverted,” Symington added. “In addition, the Big ‘I’ believes there would likely be many new conditions accompanying federal regulation, including the possibility of community reinvestment act type requirements, anti-redlining provisions, Federal Trade Commission oversight, rate regulation at the federal level, and much more.”
The Big “I” agrees there is no question that reform is needed in order to address many of the concerns listed in the letter, including “inconsistent and inefficient regulation” and others cited, but also believes that agents and brokers and the consumers they work with are better served by reforming the current system.