PCI’s Csiszar: Regulatory Reforms Needed Now More than Ever

November 30, 2004

The insurance industry, entrenched in controversy and hampered by a disjointed regulatory system, needs serious reforms in order to remain an effective risk-transfer mechanism for the U.S. economy, according to Ernie Csiszar, president and CEO of the Property Casualty Insurers Association of America (PCI).

Csiszar delivered his remarks to the International Insurance Foundation, a group of global financial services officials, meeting in Washington, DC. The IIF meeting came on the heals of a Senate Governmental Affairs Subcommittee hearing on the allegations of bid-rigging and price manipulation raised by the investigation of New York Attorney General Eliot Spitzer at which Csiszar had testified.

“The fragmentation of insurance markets is neither efficient nor effective,” Csiszar said. “When a company has to file over 350 versions of the same form in order to apply to sell one new product in fifty different jurisdictions, and it then takes some states 18 months to approve that product, clearly, we have a problem. The fragmentation of our regulatory system is also extremely taxing on consumers and the economy. I have seen estimates that our overly archaic regulatory structure costs consumers 8 to 15 cents for every premium dollar. That’s a 15 percent tax on every insurance policy sold in the United States.”

Csiszar also urged the industry to not let the push for regulatory modernization get sidetracked by the Spitzer investigation. “The specter of the allegations of illegal activities is not going away for some time. We need to coalesce around this opportunity to push reforms in individual states and in Congress,” said Csiszar.

“Those who break the law should be fully prosecuted. However, to besmirch an entire industry because of the work of a few bad apples is beyond reproach. Filing lawsuits that significantly reduce the market value of individual corporations and entire industries – damaging millions of consumers and tarnishing the reputation of the vast majority of ethical business professionals in the process – is not my idea of consumer protection,” Csiszar said.

“Because insurance is a fundamental building block of all economic development, the industry must come together to police itself and work on regulatory reforms that have a meaningful impact on consumers and the economy,” said Csiszar. “The State Modernization and Regulatory Transparency (SMART) Act, authored by House Financial Services Committee Chairman Michael Oxley (R-Ohio) and Capital Markets Subcommittee Chairman Richard Baker (R-La.) is an excellent start. Consideration of additions to that legislation that call for the transparency and disclosure of producer compensation arrangements would instill another level of information that consumers can use to make sound business decisions.”

While Csiszar noted the importance of reforming the regulatory structure, he also discounted the idea of an optional federal charter.

“Proposals for an optional federal charter are not only politically unfeasible, they also run the risk of making insurance a government entitlement program. An optional federal charter would create another bureaucracy in Washington that cannot serve the needs of its constituents,” he said.

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