Ernie Csiszar, president of the Property Casualty Insurers Association of America, told the annual meeting of State Insurance Trade Associations (SITA) that State insurance company trade groups will play a crucial role in determining whether reform of the state-based regulatory system will be effective.
In his keynote speech to the organization Csiszar stressed that “the insurance industry is too frequently in the ‘reactive’ mode when it comes to public policy debates.
“We are perceived as holding back the forces of change, he continued. “Every industry has undergone enormous transformations in the past 40 years; some industries and businesses have had to reinvent themselves. Insurance is the exception. We are still doing many things – including the way the business is regulated – like we did in the 1950s. We need to be much more vocal advocates for positive change, and state insurance trade groups are vital to that effort.”
Csiszar told the SITA representatives that insurance regulation is based on an “outmoded, dysfunctional ideology” and based on “the ill-conceived notion that government knows best.” If the insurance regulatory system is going to change – and he believes it must – then insurers must first help public policymakers understand how a well-regulated insurance market could and should be structured and how a competition-based market benefits insurance consumers.
“The current system is too intrusive,” Csiszar stated. “Regulators are actually in a position of being able to write insurers’ operations manuals. Regulation is based on rules and processes, not principles and outcomes. As a result, we over-regulate the trivial and under-regulate the essential.”
Despite the flaws that exist in the current state-based system, Csiszar does not believe that creation of a federal insurance regulator is the solution. “Just look at the Department of Homeland Security, our most recent federal bureaucracy,” he noted. “It already has more than 38,000 employees. If you think that states can produce a lot of paper, wait until you see what the folks in Washington, DC can do.”
He fears that a federal approach would limit insurers’ underwriting freedom and may result in the redistributing of risk. He pointed out that the two current federal insurance programs – the National Flood Insurance Program and the National Crop Insurance Program – do not allow insurers to use cost-based pricing to assess risks. “There is no indication that this philosophy would change if federal regulatory oversight were expanded to include other lines of insurance,” he observed.
Csiszar also said the PCI supports the concepts of the SMART Act, legislation that would establish federal standards for state regulation, but it still has some concerns about accountability of the states to comply with the standards, as well as provisions dealing with market conduct, guaranty funds, and solvency. “The elimination of price controls and the movement toward competitive rating is the heart of the SMART Act,” Csiszar continued. “And this provision is the one generating the most heat from NAIC and individual state regulators. As the SMART Act moves forward with the competitive rating component, it will continue to keep pressure on the states to modernize their regulatory environment or be faced with a federal system.”
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