State Regulator, Former Congressman Caution Insurers on Federal Regulatory Intervention

November 19, 2003

A leading state regulator and a former U.S. Representative warned insurers that expanding congressional oversight of the industry may worsen rather than improve the regulatory system.

Ernst Csiszar, South Carolina Insurance Director and vice president of the National Association of Insurance Commissioners (NAIC), and J.C. Watts Jr., former U.S. Representative from Oklahoma made their remarks at the 58th Annual Meeting of the National Association of Independent Insurers (NAII).

“This should not be a debate about state regulation versus federal regulation,” said Csiszar, “but one about good regulation versus bad regulation. With federal regulation you will get a huge bureaucracy, lots of rules, and income redistribution. You need look no further than the National Flood Insurance Program for evidence of this. Flood insurance costs exactly the same no matter where you live and no matter how many losses you have had. There is no reason to expect that federal regulators will treat underwriting standards for other lines of insurance any differently.”

Csiszar was critical of the state regulation that precludes insurers from pricing products correctly because the system is “designed to suppress rates.” Until insurers can price products accurately, “we will be in a slow death cycle.” However, he cautioned that none of the bills that would expand federal oversight of insurance through an optional federal charter plan contain any freedom from rate review. “And those who are pushing this concept,” said Csiszar, “will abandon any provision to include rate filing freedom when they get what they want, which is form filing freedom.”

While Csiszar is opposed to the optional federal charter concept, he reportedly believes the federal government may be able to play a role in establishing standards to enhance the uniformity of state regulation.

In testimony to a congressional panel earlier this year, Csiszar stated that NAIC’s goal is to achieve a more uniform state regulatory system because it makes sense for both consumers and insurers. In addition, he stated that any federal legislation dealing with insurance oversight carries with it the risk of creating an unnecessary bureaucracy and the threat of undermining or pre-empting state consumer protection statutes and regulations. Csiszar told federal lawmakers that NAIC and individual state regulators would continue to work with Congress and within state government to improve the efficiency of state regulation.

Watts said that he understood insurers’ frustration with having to deal with many different state regulatory requirements, but advised the industry not to abandon state regulation hastily.

“You may think you are trading 50 different regulatory problems for one,” he said. “But I can assure you that every member of Congress will think he or she understands your business better than you do and will have an opinion on how best to regulate your business. You must evaluate whether it is worth the risk to trade the 50 devils you know for the 535 devils you don’t. I urge you to think this through carefully before proceeding down that path.”

Calling the regulatory system in some states “the last bastion of socialism in the U.S,” Csiszar said that there is a continuing need for radical change on the regulatory front.

“The market – not regulation – needs to drive the price of the product,” he said. “This must become the number one item on the agenda of every state regulator and the NAIC. This is not the case today and you – the industry – must take action to make this happen. The time for talk is over.”

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