Open Competition Without Price Controls is Key to Improved Insurance Regulation, NAMIC Tells Congress
Apr 17, 2008
Insurance News Net--April 16, 2008
WASHINGTON (April 16, 2008) – Simplifying and modernizing the nation’s financial regulatory process within the current regulatory system will lead to better products and costs for insurance consumers, according to the National Association of Mutual Insurance Companies (NAMIC).
In testimony submitted to the House Financial Services’ Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, NAMIC said open competition and market-oriented regulation are in the best interest of the industry and the customers it serves. The subcommittee today is examining a variety of proposals to address insurance regulatory reform, including federal oversight of the industry.
Despite the shortcomings of the current system, NAMIC said reforming the state system is preferable to introducing an additional layer of regulation through the federal government.
“The state-based insurance regulatory system over the years has proven to be adaptable, accessible, and relatively efficient, with rare insolvencies and no taxpayer bailouts,” said Carl Parks, NAMIC’s senior vice president for government affairs. “While much more reform is still needed, the states have not been blind to the criticism that they need to change with the times, and they have made some significant progress in addressing antiquated rules such as those involving price controls and company licensing restrictions.”
NAMIC argued that federal regulation of insurance would open the door to unanticipated problems and pitfalls. Also, it said federal regulation has proven no better than state regulation in addressing market failures or protecting consumer interests.
“Inadvertent failure to properly act in any of a number of critical areas could damage the nation’s insurance market by reducing competition, harming consumers, and delaying needed reform at the state level,” Parks wrote. “For example, while proponents of an optional federal charter tout the significant rate deregulation anticipated by the bill, the political and practical reality is that any federal system is likely to more closely resemble the California strict regulatory approach than the Illinois open competition model.”
Parks warned of the potential dangers inherent in a recent Treasury Department recommendation to create an Office of Insurance Oversight with authority to address international regulatory issues and provide advice and counsel on domestic and international policy issues affecting insurance.
“The establishment of an OIO is a prelude to a dual insurance regulatory regime,” Parks said. “Introducing an OIO into the insurance regulatory scheme could create regulatory confusion and undermine the state-regulatory structure.”
Instead of federal oversight, Parks suggested the federal government play a limited role in targeted reforms to achieve national uniformity and consistency. “Targeted federal legislation … could be more easily achieved and with less federal bureaucracy leading to more expeditious insurance regulatory reform.”
H.R. 1065, for example, would streamline regulation for nonadmitted insurance and reinsurance carriers and surplus lines companies. “The core reform put in place by the legislation would ensure that only one set of state regulatory rules apply to policies that insure exposures in multiple states – those of the policyholder’s home state,” Parks said.
NAMIC also supports domiciliary deference, which vests responsibility with the regulator of an insurer’s state of domicile to take the lead role in specified regulatory functions. “The concept of domiciliary deference is embodied in H.R.1065 with respect to the treatment of nonadmitted and surplus lines. The concept could be expanded to streamline regulatory processes and avoid redundant examinations and document productions.”
Another bill, H.R. 5611, would establish licensing reciprocity for insurance producers that operate in multiple states to allow for non-resident insurance agent and broker licensing.
“NAMIC fully supports the goal of simplification and modernization of the nation’s financial regulatory process,” Parks said. “We encourage the subcommittee to fully explore all options for modernizing and reforming the state-based regulatory system. We look forward to working with the committee on proposals to enhance the state-based insurance system for our nation’s insurers and policyholders.”
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