Sens. Sununu, Johnson Reintroduce Optional Federal Charter Legislation

May 25, 2007

  • May 25, 2007 at 7:58 am
    Pro Option says:
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    Let\’s see. AL requires that I file forms, A, B & C every year. IN requires form B & C every six months. MN would like form A sent quarterly and form C has to be notarized but only files annually. LA will not accept any form more than 20 days before the due date. MI requires form A, B, & C plus special form D which must be certified by the corporate secretary and signed before two witnesses and of course everyone charges a different fee, which must be adjusted based on retailatory calculations. Yes, I can see where state regulation makes so much sense – especially for small companies that have all the resources in the world to stay on top of this madness.

  • May 25, 2007 at 12:18 pm
    Actuary says:
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    I\’m also at a loss as to why anyone would oppose this idea. The platitudes from NAMIC and Big I don\’t seem justified. Can anyone provide some rational arguments opposed?

  • May 25, 2007 at 12:24 pm
    Student Actuary says:
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    One point on OFC that I\’m confused about is it\’s interaction with state specific insurance law.

    Under OFC, would a company be able to sell a tort policy in a no-fault, and likewise would it be able to sell a no-fault policy in a tort state?

  • May 25, 2007 at 1:51 am
    Patriot says:
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    You are inviting the FEDS into our lives! Think about this.. Remember stuff flows down hill..

    It could be managed by someone like the dictator Spitzer..

  • May 25, 2007 at 2:41 am
    Sue says:
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    I can see where there would be a benefit for large multi-state operations and for surplus lines companies. However, they are also talking about including personal lines in this version of the OFC. That would seem to be an invitation to disaster. To me, this looks like a case of the government rushing in to help, just like they did with Katrina. I believe it was Ronald Reagan who identified one of the all time big lies as \”I\’m from the government and I\’m here to help.\”

  • May 25, 2007 at 3:37 am
    Doug says:
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    I agree with Sue. Fed Reg can have value in areas that are currently weakly regulated, such as surplus lines.

    The real concern is in personal lines, both P&C and Life & Health. If consumers have concerns about their insurance company or agent, they can contact their state Insurance Dept and get real time assistance.

    If you have a concern about your bank, is there a similar Federal agency that you can call and receive that kind of assistance? NO!

    This is why the \”LARGE\” industry groups are so for this, they will be able to side-step any substantive marketplace regulation, which is what the states do so well.

    Can the states improve, sure, but what has the Federal government done so well that we think they can do better than the current system?

    Finally, even though insurance is a financial service, it is not the same as banking. Banking is typically made up of simple transactions, easily accounted for and tracked, which may be why the Feds have so little Marketplace regulation, but Insurance is a very complex transaction made up of unique needs based often on regional issues and concerns, and best managed with regulation that focuses both on the financial transaction and the Marketplace ethics and competency of the insurance company. Again, nothing the Feds have done before and certainly not something they are likely to do if they take over!

  • May 25, 2007 at 3:41 am
    EeeBee says:
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    Sununu must not think much of the state he represents – insurance departments are the largest depositors into their state\’s general fund. They generate more money than it costs to run them.

    As for who would regulate at the federal level – who else? The NAIC. That\’s what they\’ve been positioning themselves for for the last decade.

  • May 29, 2007 at 7:45 am
    Actuary says:
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    To opponents of Federal Regulation, I would encourage you to read the bill as proposed by Johnson and Sununu. I think you will find many of your concerns unfounded.

    How many of you deal with the 50 state regulatory system with any regularity? I do and the lack of uniformity across states creates huge administrative costs for compliance with little benefit to show for it. Furthermore the burdensome and timely filing process creates huge delays in bringing new products and rates to market and encourages governmental rate suppression which results in situations such as that happening in Florida Property at this very moment or Medical Malpractice in the early part of the decade when coverage can\’t be found b/c regulators won\’t approve adequate rates.

    I\’m sure many readers of this website are agents who are frustrated at how slow and clumsy insurance carriers are to react to changing market environments. This is a direct result of the painfully slow, inconsistent, and fragmented 50 state regulatory system. An optional Federal charter as proposed by Sununu/Johnson would eliminate rate regulation, encourage more innovation among insurers, reduce administrative costs, and increase customer choice while also reducing customer cost. Furthermore open competition for rates would eliminate the implicit cross-subsidies that exist in many states and by charging market driven risk-based rates, better discourage risky behavior (such as building condos on the Florida barrier islands). Lastly, a Federal Regulator would provide stronger consumer protections. In many states, the State DOI has less resources and power than the larger insurance carriers. For example in Mississippi State Farm has an almost 30% market share of the homeowners market. A credible threat by State Farm to pull out of the state would be very damaging to the MS insurance market and State farm has resources and staff that greatly outweigh those of the Mississippi DOI. Furthermore, the MS DOI only has jurisdiction over State Farm within the State of Mississippi. However a Federal regulator would have the resources and scope to impact State Farm across the entire country, resulting in a more powerful deterrent for any potential misconduct. (Note: I\’m not picking on State Farm here or saying they\’ve done anything wrong, just using them as an example)

    IMO, most industry opponents of Federal Regulation are afraid of the new sources of competition that it would generate (many carriers and agents would quickly expand into new states) and try to scare others out of the idea to protect their own interests. Never mind that this increased competition and choice would be great for consumers which is the most important criteria our politicians should consider when evaluating this legislation.

  • May 29, 2007 at 10:06 am
    Doug says:
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    Actuary,

    Much of what you say is true. Every state does require different things that do add to the costs of doing business.

    There are two items you left out of the equation though.

    First, many states learn from each other and pass similar legislation over time that assists both consumers and the marketplace. Under a single federal umbrella, the lab environment of different smaller regulatory environments goes away and even though you have complete uniformity, it will mean you have no ability to meet unique needs through local environments. Also, by eliminating rate regulation, you encourage a marketplace where the large carriers can price the little guys out, reducing consumer choice and creating an even greater oligarcy while only experiencing short term rate reductions. Later, when there are fewer choices, yet still high demand, market forces dictate increased rates.

    Secondly, you states that consumers would have greater protection from a federal government. Have your parents or grandparents had any luck with CMS helping them with their Medicare Part D or Medicare Advantage recently. Mine certainly didn\’t! My family has had 2 generations of federal regulators in it and they all agreed, the federal system is excellent at counting beans and \”eliminating rate regulation\”, but it isn\’t designed to take phone calls from Kalispell, MT or Portland, ME about why their insurance company hasn\’t paid their claim yet, or why their agent has told them to replace their annuity for the 3rd time in 7 years. Consumer protection at that level is not what the federal government does, and from the sound of many in the industry, they are happy with that. I believe most consumers, if they knew what their states did do for them in consumer protections, would be ok knowing that there were some added burdens at the company level to assure a fair marketplace that was well regulated from a consumer protection standpoint, and not just a most profitable for the company standpoint.

    Especially since most consumers are not stockholders.

  • May 29, 2007 at 11:11 am
    Pat Beranger says:
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    The existing system needs to be modernized. Here are 2 reasons some companies oppose OFC:

    1. Regional carriers, which serve an important consumer need, typically do not operate in all states. They have more influence and can respond sooner to local market conditions under state regulation.

    2. Closely aligned with the above, it will be difficult for small states or localized issues to get a fair hearing under a federal system. By way of example, Florida requested a national response to help them deal with catastrophes and the response was to the effect of: \”that\’s the price you pay for living in paradise.\” It is feared that issues too small to influence federal election will ultimately be ignored.

    Again, few oppose streamlining. There are options that preserve state regulation such as the SMART Act.



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