Inside the Beltway—Federal Regulation Threat Remains Priority

May 18, 2009

Health care reform hasn’t completely overwhelmed federal regulation as a concern in Washington, at least for insurance agents. They believe that given all of the current financial turmoil, some type of financial regulatory reform is likely this year.

“Congress is going to decide where we’re regulated, how we’re regulated, and who is going to regulate us. That’s a fundamental issue for any business, let alone independent insurance agencies. So we want to make sure, no matter what Congress does, that they do the right thing and that we help shape the future of our regulatory system,” said Bob Rusbuldt, president and CEO of the Independent Insurance Agents & Brokers of America (Big “I”), in a recent interview with Insurance Journal.

Life insurers and large property/casualty insurers have for years pushed for the option of being regulated at the federal level, rather than at the state level. Agents have long opposed this federal option, arguing that it’s a bad idea for independent agents, their carriers and their customers.

“We happen to believe that regulatory arbitrage is not good for consumers. We believe that dual regulation is bad for independent insurance companies and our consumers,” Rusbuldt said.

Rusbuldt said agents dread the situation where they would have to represent both federally regulated and state regulated carriers. “One of your clients may have six different insurance policies. Half of them may be regulated at the federal level, half may be regulated at the state level. Agents will have to become experts in two regulatory systems, not one,” he said.

As far as agents are concerned, the imperfect devil they know – state regulation – is better than the devil they don’t.

“We want to make sure that we continue to have state regulation, but state regulation that is improved.”

Whether the life and large P/C insurers lobbying for the federal option get their way remains to be seen. There is less talk about that in Washington than there is over whether there should be some sort of systemic risk regulator, council or both to oversee large banking, securities and insurance conglomerates like American International Group that now seem to fall between the cracks of the federal watchdogs.

The systemic approach could open the door for federal insurance regulation, however. Rep. Barney Frank, D-Mass., who chairs the powerful House Financial Services Committee and is generally in favor of state regulation of insurance, has indicated that his proposal to create a systemic risk regulator would likely cover large insurers. He has said that federal regulation ultimately may apply to life insurance that acts like an investment but is less likely for P/C insurance.

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