Optional federal charter is needed

Editor’s note: The following excerpt is edited from an oral statement made by Joseph J. Beneducci, president of Fireman’s Fund at the Senate Banking, Housing and Urban Affairs Committee’s July 11 hearing on Insurance Regulation Reform. Beneducci spoke as a representative of the American Insurance Association. The Senate Banking Committee is considering legislation that would allow life and property/casualty insurers to choose federal rather than state charters under an “optional federal charter” regulatory system.

Insurance regulatory reform is a vitally important issue to consumers, as well as property-casualty insurers. There is little disagreement that the current regulatory system is broken. The current regulatory system discourages and delays innovation, distorts risk-based pricing, and limits consumer options. That makes it difficult, if not impossible, for insurers to respond to increasing and evolving customer needs.

Many proposals have attempted to deal with the inadequacies of the current system with literally decades of debate. Yet not one has come close to delivering a modern system that empowers consumers and focuses on real consumer protections.

It is time for a new approach.

Consider the following three observations about the property-casualty insurance market and the best way to regulate the market:

1. The nation’s economy is not static and continues to become more global every day. Consumer needs continue to expand and grow in conjunction with the economy. These evolutions have surpassed the current insurance regulatory environment’s effectiveness and viability.

2. The current regulatory system inhibits innovation and actually perpetuates commoditization, to the detriment of consumers.

3. A market-based optional federal charter can benefit consumers by reforming regulation and encouraging innovation, while retaining the state regulatory system for companies who wish to remain there.

An optional federal regulatory track — based on clear and more appropriate principles — is the best way to foster innovation and achieve regulatory modernization that works for consumers, the industry and our economy.

Members of the American Insurance Association strongly support the bipartisan National Insurance Act of 2006, introduced by Sen. John Sununu, R-N.H., and Sen. Tim Johnson, D-S.D., on April 5, 2006. Importantly, the Act gives insurers the option of being nationally regulated, while preserving the current state system for insurers who believe they can better serve policyholders within such a framework.

Property-casualty insurance stands out in our free market economy, because we are the only part of the financial services sector still laboring under pervasive government price and product controls. This form of regulation is rationalized as “protecting the consumer”.

Yet S. 2509 provides a better alternative. It enhances capacity by “normalizing” regulation. The allows the marketplace — and, by extension, consumers — to dictate the full range of price and product choices. It establishes stronger, re-focused regulation to protect consumers as they navigate the marketplace, and look to financially sound insurers for payment of covered claims.

In addition, an optional federal charter would bring the best balance of needed uniformity for those choosing a national license, while respecting the decisions of others to remain under state regulatory authority.

Over the long-term, a federal regulatory option will effectively modernize industry regulation and empower consumers. By relying on the hallmarks of the free market and individual choice,

S. 2509 recognizes our customers’ changing needs and insurers’ desire and ability to meet those needs in a highly competitive global market.

Without a doubt, everyone here supports a healthy U.S. insurance marketplace that serves and empowers American consumers. We appreciate that creation of such a modern, dynamic market is not without challenges, and that change can be unsettling for some. However, we believe that creating an optional — let me stress optional — federal charter is imperative to meet the needs of all types of consumers and insurers. There is no compelling reason not to fully explore and debate this proposal.

I advocate an optional federal charter that truly would serve consumers by fostering efficiency and innovation. We strongly support S.2509 and thank Senators Sununu and Johnson for putting forth this thoughtful legislation.

Joseph J. Beneducci is president and chief operating officer of Fireman’s Fund Insurance Co. and a member of the American Insurance Association. Fireman’s Fund was founded in 1863 with a mission to support firefighters by donation a portion of the company’s profit to the families of deceased firefighters. His company specializes in providing specialized personnel commercial, and specialty insurance productions nationwide. The American Insurance Association is a property – casualty insurance trade organization, representing approximately 400 insurers that write more than $120 billion in premiums each year. AIA member companies offer all types of property – casualty insurance, including personal and commercial auto insurance, commercial property and liability coverage for small businesses, workers’ compensation, homeowners’ insurance, medical malpractice coverage, and product liability insurance.

Topics Carriers Legislation InsurTech Property Property Casualty Casualty