New Paper Evaluates Current State of Insurance Regulation and Its Future

August 27, 2009

The current state of the financial services industries and the role of the federal government in regulating these industries, including the insurance sector, continues to be a matter of debate in Congress.

To help assess the current status of insurance regulation and evaluate the range of potential reforms now being discussed in Congress, the Professional Insurance Agents Insurance Foundation published a white paper titled “Future of the Business Disciplines, Regulation and Oversight of the U.S. Insurance Marketplace.”

The paper, written by Mark Boozell, the former Director of the Illinois Department of Insurance (1995-1998) under Gov. Jim Edgar (R), aims to provide lawmakers, regulators and industry officials with “a valuable and serious factual assessment of what’s required for insurance oversight to work, benefit, and safeguard U.S. consumers and our economy,” said Terry R. Adams, president of the Professional Insurance Agents Insurance Foundation.

“As lawmakers, regulators and industry officials continue to define what is meant by insurance regulatory reform, our foundation wanted an author that brought a solid and successful record of hands-on experience as a former state administrative and executive official from a significant U.S. state insurance jurisdiction,” said Adams. “The PIA Insurance Foundation believes it should be must-reading for every policymaker when determining the future direction of modernizing the U.S. insurance system.”

In his preface to the white paper, Boozell wrote that the public never takes government interference in the free market lightly.

“In the United States, neither the people nor their governments take lightly the standards and processes by which government interferes with and monitors the free market,” said Boozell. “In the case of insurance regulation and oversight, the debate over whether federal involvement should be expanded is a debate that has only just begun.”

Boozell wrote that the core principle driving oversight of the business of insurance by the states, together with the enforcement of state insurance laws, is protection for consumers. “This means a state oversight and regulatory system that is compatible with state common law; addresses insurance-related matters in courts; and assures a robust, well-ordered insurance marketplace with adequate capacity to meet the needs of consumers. This system also ensures that all insurance participants in U.S. markets conduct their insurance activities in a fair, equitable and nondiscriminatory manner, as well as be legally and financially responsible for errors and/or wrongful actions.”

He adds that the existing federal bureaucracy as it currently relates to insurance is broad and diverse. “A plethora of federal agencies and entities have some measure of authority over various aspects of insurance…all letters in the cauldron of federal ‘alphabet soup’ which have some measure of responsibility that relates to U.S. insurance laws, regulations, insurers and insurance producers.” These federal entities work regularly with state insurance departments and the National Association of Insurance Commissioners (NAIC) to coordinate their activities, because insurance remains a state-regulated business, he wrote.

“Acknowledging these realities, the Obama administration has called for a new office of insurance within the Treasury Department, but will not propose federal regulation of the insurance industry as a part of its sweeping financial reform plan,” said Boozell, adding that “the devil is in the details.”

Boozell writes that in recent years the federal government and Congress have had difficulties in getting it right when forming new major government oversight structures, such as the Department of Homeland Security (DHS).

“DHS was forged out of existing and differing federal agencies. The resulting mass remains a largely segregated and redundant organization with lingering inter-departmental and inter-agency struggles. The resulting large federal entity that resulted still fails to serve the very prime entities that DHS was intended to serve: state and local law enforcement agencies.”

As Congress and the Obama Administration continue efforts to mitigate past failures of federal regulatory agencies, the insurance industry deserves prominent status as an existing stakeholder under existing authorities, Boozell said. “But should their involvement in the public policy debate be mistaken as the implicit stamp of approval on unprecedented changes in the regulatory landscape, particularly when the industry is not universally agreed? Of course not.”

Boozell noted that a variety of arguments, including the proper role of the federal government in facilitating international agreements regarding insurance, have validity and warrant further consideration. “But the very nature of the arguments themselves – relatively young, underdeveloped and ripe with disputable logic – render the overall debate a work in progress and desperately needing additional examination,” he wrote.

Boozell served the State of Illinois for over two decades in a variety of leadership roles in both the Executive and Legislative branches of government. After his government service, he joined a Fortune 500 Company to lead a division of managing general underwriting groups responsible for over $100 million in gross written premium. Boozell is currently a government policy advisor with the Chicago-based law firm Dykema Gossett PLLC.

The Professional Insurance Agents Insurance Foundation (c-3) is dedicated to fostering critical applied research and information that furthers the knowledge and understanding of the nature, scope, function, operations, and law of the business of insurance, primarily as practiced in the United States.

Source: PIA,

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