Insurance Quotes & Advice

The Senate Banking Committee held more hearings this week for the creation of an Optional Federal Charter(OFC).  It is unlikely any kind of legislative action will take place before the current Congressional session ends but the current hearings could lay the groundwork for future regulatory policy decisions.

The ongoing breakdown of the financial services sector over the past year has opened the door for the sweeping regulatory reform movement in Washington.  It should be noted that the insurance industry is no where near the condition of their financial brethren in commercial and investment banking sectors.

Don’t get me wrong, the insurance industry has taken it’s fair share of lumps during the current economic downturn, with losses outpacing the payments made in the aftermath of Hurricane Katrina.  That being said, there’s no government bailout being drawn up for the insurance industry and it’s not like the Fed has had to open up the discount window for them like it did for investment banking firms.

Let’s face it, the economy is in the dumps for the time being and with the stock market struggling it’s going to adversely affect of the bottom line for the insurance industry for some time.  However, that’s because the industry holds a substantial amount of capital, most of it held as investments, in order to meet the potential liabilities from claims that can arise at any given time.

The is no question the commercial and investment banking sectors are definitely in need of more stringent regulatory controls.  The OFC on the other hand would give insurance companies the option for less regulation than they currently have with the current state system.

There’s a reason why the insurance industry hasn’t gone down the drain like the rest of the financial services sector.  It’s quite obvious that states have done a much better job than the federal government at policing the excessive risk taking that has been standard practice since firms conveniently forgot the hard lessons from the Savings & Loan debacle.

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. 

State insurance commissioners testified before Congress saying they were willing to support an Office of Insurance Information(OII).  The proposed legislation would be called the Insurance Information Act of 2008 and would give the OII, which operate under the Treasury Department, the power to establish federal guidelines over international insurance policy.

State insurance regulators support the bill’s objectives of allowing a federal agency to work with state insurance regulators to receive and analyze industry data; and establishing a central point of contact in the federal government for foreign governments regarding international insurance matters.

“While state insurance regulators wholeheartedly support and actively engage in efforts to help U.S. insurers compete globally, we oppose and caution against any legislation with a broadly preemptive approach,” McRaith said. “State regulators would object to the OII or any other federal entity having the authority to preempt consumer protections and solvency standards adopted by the states.”

State regulators still believe that regulatory powers should be left in their hands as they are better suited to protect consumers.  The recent troubles in the credit markets have re-ignited the debate between federal and state governments concerning oversight for the financial services sector including insurance.

Some officials in the federal government have been openly critical of the current state regulatory system calling it cumbersome and inefficient, that it restricts global opportunities for the nations’s insurance companies.  State regulators fired backed quickly, blaming the recent financial meltdown on years of deregulation instituted by the federal government.

The OII would give the it’s international counterparts a single office to enter agreements into, without having to interact with fifty different state insurance commissioners.  How this will work in reality remains to be seen.  It could be quite disconcerting to foreign governments, if a single dissenting state government could have to the power to nullify an international insurance agreement.