Lack Of Legislative Action Could Doom Optional Federal Charter
The drive for regulatory reform of the insurance industry has slowed to a crawl in Congress and at this point it is unlikely any movement on a Optional Federal Charter(OFC) and the creation of a national insurance commissioner will happen this year according to the Insurance News Net.
The OFC, which will enforce a single central regulator to replace current state-run systems, has been a long-time divisive issue between members of the Optional Federal Charter Coalition and the Coalition Opposed to a Federal Insurance Regulator.
The schism and the recommendations coming from the two factions are expected to make it even harder for lawmakers to agree on a direction which will effectively regulate financial companies and markets.
Back in March, Treasury Secretary Henry Paulson called for sweeping changes to regulatory oversight for the entire financial services sector including the insurance industry. Troubles in the financial sector from the subprime fallout have paved the way for the federal government to openly challenge the states’ century old strangle hold on insurance regulation.
Although state commissioners are vehemently opposed to a single federal regulator, they did support legislation for the creation of an Office of Insurance Information. That office would help coordinate policy efforts between state regulators and foreign insurance commissions.
Beginning in the early 80’s federal deregulation of financial services helped blur the lines between the insurance, commercial and investment banking sectors. One could argue that the insurance industry is faring much better in the current economic slowdown because it is under state control as opposed to it’s financial brethren which are under federal oversight.
While the current state system of insurance regulation is widely acknowledged as woefully inefficient, many are concerned that the withdrawal of control from states’ hands might not be in consumers’ best interests. With little action expected to be taken this year, you could see support of a national insurance commissioner slowly trickle away if financial markets improve by the time the next congressional session reconvenes.
