The U.S. regulatory structure for the insurance industry puts companies at a disadvantage overseas and stifles innovation and competition for consumers, the industry told U.S. lawmakers Tuesday.
At a Senate Banking Committee hearing to consider creating an optional federal charter system, the insurance industry said the current system of state charters also hinders foreign firms from providing products to U.S. consumers.
“The absence of a federal insurance regulator leaves the U.S. insurance industry at a distinct disadvantage,” John Pearson, chairman of Baltimore Life Insurance Co, said in prepared testimony.
Pearson, who testified on behalf of the American Council of Life Insurers trade group, said the industry is subject to disparate laws and regulations in various states that stifle innovation.
For several years some within the industry have been pushing for a federal charter, seeking to shed what it calls the burdens brought on by chartering in different states.
Pearson also said there is a perception abroad that the U.S. system discriminates against foreign companies and acts as a de facto trade barrier.
The issue was recently highlighted by the Treasury Department which proposed streamlining regulation of the U.S. financial services industry, including insurance.
Steven Goldman, New Jersey commissioner of banking and insurance, said the industry has not suffered despite the complaints, citing record industry profits.
According to the Consumer Federation of America (CFA), insurers generated post-tax profits of $253 billion from 2004 through 2007.
In 2004 four major hurricanes hit Florida but the property and casualty insurance industry posted record profits of $40.5 billion and insurers saw another year of record profits in 2005 even with Hurricane Katrina, the consumer group said.
Industry analysts have said the chances of passage for any of the bills now aimed at creating a federal system is low given how little time is left on the congressional calendar.
Committee Chairman Sen. Christopher Dodd said the insurance industry, like other segments of the financial services sector, is increasingly becoming international. Many large insurance firms operate in Dodd’s home state of Connecticut.
“The ability of insurers to spread U.S. risk broadly around the world has enormous benefits for American consumers, as it increases insurance capacity here at home,” he said.
Some critics, including Goldman, fear consumer protection efforts would be eroded if states loose the ability to regulate insurers.
Travis Plunkett, CFA legislative director, said state regulators have not fared well either in some consumer protection issues but a federal system could harm state consumer protection efforts.
He said insurers want a system similar to U.S. banking regulation that allows banks to choose their regulator.
“The insurance industry is very pragmatic in their selection of a preferred regulator,” Plunkett said. “They always favor the least regulation.”
(Reporting by John Poirier; Editing by Tim Dobbyn)
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