If a mandatory or even an optional federal charter is implemented in Washington, D.C., it will be a “recipe for disaster,” a top insurance agent lobbyist has warned.
Charles E. Symington, Jr., told more than 500 Mississippi agents that the national association he lobbies for, the Independent Insurance Agents and Brokers of America, opposes federal regulation of insurance, whether it be optional or mandator.
Symington is senior vice president of government affairs and federal relations for the IIABA, or Big “I.”
He spoke during the Mississippi Big “I” annual convention in Destin, Fla.
The industry’s biggest concern is where insurance should be regulated, on a state or federal level, Symington explained.
“The debate over where insurance should be regulated, on a state or federal level has been going on for a long time,” Symington said. “You may not think it has much effect on your day-to-day operations, but it is starting to heat up and the outcome will play a big role in your future.”
“We are very strong supporters of state-regulated insurance,” Symington said. “However, we recognize that state insurance regulation needs to be brought into the 21st Century.”
He said agents and brokers across the country realize first hand the patchwork requirements that states oftentimes have and that these requirements can be a burden to businesses.
Supports SMART Act, targeted legislation
That is why the Big ‘I’ supports targeted federal legislation working through the state-based system.
Symington said Big ‘I’ supports Mike Oxley, R-Ohio, House Financial Services Committee chairman, and Rep. Richard Baker, R-La., who have proposed the SMART Act. This act seeks to improve state insurance regulation, rather than dismantling it, like proposals that would create the optional federal charter and a federal regulator.
“SMART rides on the over-100 years of experience and model state regulators have regulating the insurance marketplace and does not throw out the baby with the proverbial bath water,” Symington explained.
He said there is significant disagreement over where to take this debate. According to Symington, some of the large international insurance companies want to see an optional federal charter that is aligned with the federal banking regulator, the Office of the Comptroller of the Curency.
“They believe the state system is beyond repair and that it should be regulated in Washington, D.C.,” Symington said. “Unfortunately, U.S. senators John Sununu, R-N.H., and Ken Johnson, D-S.D., see it this way and in April proposed S 2509, the National Insurance Act. This would create a federal regulator the Office of National Insurance, based on the Office of the Comptroller of the Currency. This would be housed in the Treasury Department, led by Commissioner of National Insurance, appointed by the President of the United States.
“What would this mean for you? How would this effect your day-to-day business operations?” and “Why does Big ‘I’ oppose it?” Symington asked.
Local regulation works best
Symington said Big ‘I’ believes local regulation works best for consumers and that a state-based system assures a level of responsiveness that can not be matched on a federal level.
“If a federal regulator is created in Washington, D.C. it will have a negative impact on your ability to represent your consumers and yourselves,” Symington told agents. “With the creation of a new Office of National Insurance in downtown Washington, D.C., agents would lose the capability of communicating with the state regulator and his or her staff, whom you may know personally from many years of business.
“Do you want to be able to pick up the phone and call George Dale and his staff, or pick up the phone and call a distant federal regulator who does not understand the local marketplace conditions in Mississippi?” Symington asked.
Pointing to how the Federal Emergency Management Agency responded to Gulf Coast problems following hurricanes Rita and Katrina, Symington said everyone witnessed first hand how unresponsive a federal regulator or federal agency would be if it took over insurance.
“The last thing we want to do is create a FEMA to regulate the insurance marketplace,” Symington said. “Additionally, who do you think will have the ear of this new federal regulator? It will not be Main Street, it will be Wall Street. It will not be small business, it will be big business. It will not be independent agencies, it will be financial services conglomerates.
Also, Symington maintained that said a dual state-federal structure created by a federal charter would be confusing to consumers and require that independent agents understand both systems of regulation.
As an example, he said a consumer could have an auto policy with one federal regulator; but could have a homeowners policy with a state regulator; and an umbrella policy with another federal regulator.
“This will be confusing to consumers and require independent agents to know how to navigate both systems,” he argued.
Drastically increased workload, legal exposure
Third, Symington pointed out that in regulating all insurance forms, S 2509 would require that all insurance companies merely submit lists of forms. Regulators would not have the power to review the forms. He said this this would drastically increase independent agents’ workload and legal exposure because if regulators do not analyze these forms, the responsibility is going to fall on the agents. Independent agents would have to compare forms for their customers, he said.
“It won’t be like comparing apples to oranges; it will be like comparing apples to oranges, peaches, pears and watermelons, and so-on,” Symington explained. “It will be very confusing to consumers and very difficult for you to represent them.”
Moves the ball forward for large agencies
Symington said he didn’t want to leave the audience with the impression S. 2509 is all bad, pointing out that for some larger agencies, the agent licensing reform does move the ball forward.
“However, in the end we feel the National Insurance Act will only lead to more burdensome requirements for our membership,” Symington concluded.
“We share many of the same goals, efficiency and uniformity for state insurance regulation,” Symington admitted. “But we prefer the SMART concept over the optional federal charter. We believe the SMART concept will get to reciprocal and uniform agent licensing without bringing along all the baggage of a federal regulator.
“We believe the optional federal charter creates more problems than it solves,” he said. “It would put the independent insurance agent’s livelihood in the hands of a distant federal regulator and what goes with that are requirements and information issues that would be decided by someone in D.C., rather than a state insurance commissioner.”
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