The American Insurance Association (AIA) has issued a statement lauding a report released by New York City Mayor Michael Bloomberg and U.S. Sen. Charles Schumer, D-N.Y., which calls for making modernizing financial services regulation a national priority. Among the report’s recommendations are creation of an optional federal charter (OFC) for insurance companies.
“It speaks volumes that a national legislator and the chief executive of the nation’s largest city are putting forth bold proposals to help the United States maintain its position as a global financial services leader,” said Gov. Marc Racicot, AIA president. “This kind of meaningful reform of the domestic financial services sector – including property-casualty insurance regulation – is critically important to our nation’s continued economic vitality.”
The report, “Sustaining New York’s and the US’ Global Financial Services Leadership,” prepared by McKinsey & Co., advocates creation of an OFC for the insurance industry, citing federal legislation introduced during the previous Congress by Sens. John Sununu, R-N.H., and Tim Johnson, D-S.D.; companion legislation was introduced in the U.S. House by Rep. Ed Royce, R-Calif. The report also notes the expected reintroduction of OFC legislation in the current Congress.
“Such legislation would be rooted in free-market principles, and allow competition and innovation to flourish,” stated Racicot. “Modernizing the U.S. insurance regulatory system would empower both individual and business insurance consumers, and allow insurers to customize products and meet customer needs more quickly.”
The insurance industry is divided over the issue of a federal charter, with insurance agents and other insurer trade groups opposing what AIA supports.
Racicot noted that the report echoes the need for such improvements, and also is infused with a sense of urgency about the recommendations. For example, he cites this passage from the report: “One priority, in the context of enhancing competitiveness for the entire financial services sector and improving responsiveness and customer service, should be an optional federal charter for insurance, based on market principles serving customers.”
The report also states that an optional federal charter, “would remove arbitrary pricing and product constraints that exist in many of the 50 state regimes, lower their duplicated regulatory costs, and ensure faster speed to market for new products under a uniform set of standards for serving customers effectively and efficiently. Moreover, it would give these companies a common regulatory regime more in line with their major competitors, especially Europe.”
“This new report’s recognition that many shortcomings in the state-based insurance regulatory system – particularly those stifling competition and innovation – are hurting insurance companies and consumers, and it highlights an important aspect of the debate about how best to modernize insurance regulation,” Racicot stated.
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