Insurers are split in their support of legislation that could significantly alter the way they do business by creating a federal agency to regulate the insurance industry.
The National Insurance Act of 2007, introduced by Reps. Melissa Bean, D-Illinois, and Ed Royce, R-California, would let insurers choose whether to be regulated by the new system or continue to receive oversight from the states.
The current way in which insurers are regulated gives the states authority to set industry standards. The problem, supporters of the act argue, is that large insurers who conduct business in multiple states must receive approval from each before they can introduce new products.
That particularly puts life insurance companies competing against federally regulated banks and securities firms for the annuity market at a severe disadvantage. It might take only a month or two for federally regulated companies to gain necessary approvals, thus giving them a head start over rivaling insurers who sometimes must wait up to two years.
The Washington, D.C.-based American Council of Life Insurers further argues that consumers would benefit as well, because a national system featuring a uniform and consistent set of regulations could reduce life insurance costs more than $5.7 billion. The savings would be passed on to consumers, reducing premiums roughly 1.25 percent, according to the ACLI.
"We need to be able to get our products to market more swiftly," said Jack Dolan, ACLI spokesman. "You have 50 differing jurisdictions that cause redundancies and it's, frankly, inefficient."
The bill has its critics, though, including the Indianapolis-based National Association of Mutual Insurance Cos., and the Independent Insurance Agents & Brokers of America and the National Association of Professional Insurance Agents, both headquartered in Alexandria, Va.
NAMIC is urging Congress to strongly consider the issue before uprooting a system that has been in existence more than 150 years and has the support of property and casualty companies, and insurers alike.
NAMIC contends the federal charter would create a cumbersome and over-regulated system, to the detriment of both policyholders and insurance companies.
"The notion that we're going to fix a system that has been called inefficient and slow by creating a new federal agency seems a little off track to us," said Neil Alldredge, NAMIC's vice president of state and regulatory affairs. "There's plenty wrong with state regulation, but our opposition lies with the fact that you can't [fix] it in Congress, and you're better off seeking it on a state-by-state basis."
To that end, multiple states are working together to establish a system that would streamline the current process by creating uniform standards and a single filing point. Indiana is among 30 states so far that
have joined an interstate compact for life
insurance, disability, annuity and longterm-care products. The affiliation is hoping to grow membership during the next
year and ultimately recruit enough states to spur greater uniformity.
Indiana Insurance Commissioner Jim Atterholt favors the compact over the federal charter, even though federal oversight would be optional and would not usurp the state regulatory system.
"I think the public would be much better served by a regulator on the state level, particularly from a consumer-protection standpoint," he said. "When someone calls and asks for the state commissioner, I take those calls. To replicate that at the federal level ... would be pretty difficult."
But Dan Seitz, a partner at Bose McKinney & Evans LLP who represents the Association of Indiana Life Insurance Cos., has doubts about the compact's effectiveness.
The affiliation is only as good as the number of states participating, which could present a significant roadblock considering California, Florida and New York have no aspirations of becoming members, Seitz said.
Besides joining the compact, Indiana has taken an additional step to help insurers get products to market faster. A state law that went into effect July 1 rolls back regulations that slowed insurance sales in Indiana by effectively requiring insurers to clear new products with state regulators before selling the product.
Now, commercial insurers must file new products with regulators "for informational purposes only" and can do so within 30 days after they begin selling a product.
Indiana's insurance companies say the relaxed regulation will make them nimble and able to offer coverage for unusual items faster than before. And they think more insurance companies will try to do business in Indiana because of the change.
The law completes a deregulation of commercial insurance that began in 2006 when lawmakers allowed insurers to change rates without first getting the blessing of state regulators. Under old laws, Indiana's regulators could hold up the sale of new policies by saying they did not comply with rules.
Meanwhile, the federal legislation would establish an Office of National Insurance within the U.S. Treasury Department that would be responsible for regulating the solvency and market conduct of nationally chartered insurers. The bill mandates a Division of Consumer Affairs and a consumer ombudsman within the ONI to address consumer concerns.
States would retain the right to collect and retain premium tax income. Funding for the ONI would come from fees and assessments on insurers, agencies and brokers, similar to the way the Securities and Exchange Commission is funded.
A similar bill has been introduced in the Senate, and hearings could occur later this year. Supporters doubt the bill will get serious consideration until after next year because of the presidential election.