Establishing an optional national insurance charter would increase benefits to consumers, enhance the global competitiveness of the American insurance industry, and bring greater uniformity and effectiveness to the regulatory process.
Consumer Benefits
Consumers benefit from an optional federal charter in three ways: greater availability of insurance products, lower prices and expanded coverage.
The current state-based insurance regulatory system imposes excessive burdens and delays on the introduction of new competitive insurance products to consumers throughout the United States.
Under current law, insurance providers must follow differing—sometimes conflicting—regulations in each state in which they operate. Insurers face obstacles such as inconsistent regulations, barriers to innovation and conflicting agent licensing and education requirements, among others. All of these factors drive up the price of existing products and slow down innovation and delivery of new products to consumers. American society is increasingly mobile. American businesses operate locally, nationally and internationally. State-by-state regulation simply no longer meets the needs of American consumers.
An optional federal charter system will increase the efficiency of insurance regulation and reduce costs. For consumers, this means lower premiums and easier access to innovative products. In addition, an optional federal charter system would establish the framework for national, state-of-the-art consumer protection.
Optional federal chartering would reduces the cost of insurance and increase consumer confidence in the industry and its representatives.
Global Competitiveness of the American Insurance Industry
Globalization has changed the dynamic of the insurance industry. Though some risks and insurance markets remain local or state-based, in general, insurance has become a national and international marketplace in which risks and losses are spread throughout the world.
Congress can help American companies adapt to this increasingly global business environment by modernizing the insurance regulatory system through an Optional Federal Charter. An OFC would enhance the global competitiveness of the American insurance industry and strengthen America’s position in negotiating international financial treaties.
By artificially making each state an individual marketplace, the current state-by-state regulatory structure constrains the ability of insurance companies to innovate and has a negative affect on the availability and affordability of coverage. An OFC would allow American insurances companies to operate under a uniform regulatory platform to serve their customers more efficiently and effectively. It would eliminate the arbitrary pricing and product constraints that exist in many of the 50 state regimes, lower duplicative regulatory costs, and allow for a faster introduction for new products.
The global nature of the financial services industry requires that nations work out differences in financial regulations and policies. Despite the best efforts of the U.S. regulatory community, its effectiveness on the international stage is currently constrained - not necessarily in the development of policies and ideas, but in terms of implementing those policies and ideas at home. It is difficult to gain a consensus among the state regulators on any one issue, and even when consensus is reached, state-by-state implementation makes nationwide uniform adoption and interpretation nearly impossible.
Under an OFC American insurance companies would have a common regulatory regime that is more in line with what their major competitors enjoy in their home markets. An OFC would create a more efficient regulatory environment and attract increased insurance capital back to the U.S. from off-shore jurisdictions.
Uniformity and Effectiveness
An Optional Federal Charter would bring greater uniformity and effectiveness to the regulation of the insurance industry. This efficient good government approach would streamline regulators efforts, reduce duplication, and assure consumers of the same high level of protections and recourse regardless of where they live now or in the future.
The current system of regulation is composed of 56 separate jurisdictions, each distinctly different from the others. The option of being regulated by one unified federal scheme allows insurance entities and the consumers they serve to realize operational efficiencies that inevitably lead to product savings.
This uniformity would help to eliminate the tangled web of regulation created by an overwhelming amount of state rules for financial regulation, licensing, policy forms, rates and market-conduct exams. New insurance products - often not available for sale for up to two years after initial submission for state regulator approval - would arrive more quickly on the market. A centralized system also will make it easier to track and discipline unscrupulous sellers--protecting both consumers and reputable sellers.
Efforts by state commissioners to achieve uniformity and market-based reform within the state regulatory scheme have achieve little. Many present-day problems have existed for more than a century and there is still little prospect for relief.
Optional federal chartering would not supplant state regulation. Rather, it would allow insurance companies to choose between federal regulation or state regulation depending on which system better suits their customers and business plans. It would create a modern, uniform and efficient system that matches the diversity and complexity of today’s insurance marketplace.