As to what led to the ACLI proposal, Gary Hughes, ACLI senior vice president and general counsel, explained that regulatory efficiency has quickly topped the agenda of the ACLI member companies, particularly at the chief executive officer level.

He stated that regulatory reform is seen as an issue that the ACLI must “wrestle to the ground” if the life insurance industry is to be an effective competitor in the 21st century.

This concern essentially “reflects the fact that our competitive paradigm has completely changed, certainly over the last 10 years, and probably fairly significantly over the last five years,” he continued. Life insurers now must compete directly with commercial banks, mutual funds and brokerages, he noted.

He added that in the past, when the ACLI members' rivals were mainly other insurance companies, all of the insurers experienced negative effects on their bottom lines due to state regulatory inefficiencies. “Since it affected everybody, it wasn't that significant an issue,” Mr. Hughes said.

But in these days of cross-sector competition, “if a national bank can have an innovative new product to the market nationally in a matter of weeks, a securities firm in three or four months and an insurance company in 12 months to two years, the math doesn't work out well for insurers,” Mr. Hughes observed.

While speaking from a p-c perspective, Leigh Ann Pusey, senior vice president of federal affairs for the AIA, generally concurred with Mr. Hughes' views.

“We have a regulatory environment that prohibits us from being as competitive as we need to be and thathurts consumers,” she stated.

“It's not just a function of our companies losing out to certain global companies or to banks on business–it hurts the economy, it hurts consumers, and we feel that's a pretty compelling message,” she added.

According to Ms. Pusey, the “heart” of the problem is that even if a state regulator is enthusiastic about increasing the efficiency of the insurance regulatory system, it is nearly always the state legislators who hold the true power to make the necessary changes. But they might not share the regulators' sense of urgency, she said.

This means that despite the “good intentions” of the National Association of Insurance Commissioners and its “imprimatur” on a model law, the Kansas City, Mo.-based NAIC might be “institutionally incapable of achieving these kinds of reforms because the regulators lack the necessary enforcement authority,” Ms. Pusey observed.

Mr. Hughes suggested that state regulators and legislators must change their perspectives about how a regulatory system should work.

“Historically, the states were proud of the fact that [insurance regulation]wasn't one-size-fits-all, that states could tailor their regulation to whatever they felt the citizens of their state needed or wanted,” he noted.

But he pointed out that a fixed annuity in California is no different from one in New York in terms of product features, market conduct and other factors. From this perspective, “why does one state have to be different from another state?” he asked.

Mr. Hughes believes that the NAIC leadership grasps this concept. He also thinks the NAIC leaders understand that uniformity is desirable for certain aspects of the insurance business and that this is “where a modern regulatory environment has to get to.”

But he doubts that many state legislators are as “forward-thinking.”

“Much of the lack of uniformity is embedded in statute and it's going to be incumbent upon state legislators to take action to modify and unify the approach to some of these regulatory issues,” Mr. Hughes stated.

Unless state legislators are willing and capable of doing that, it will be “very difficult” for the regulators to make the progress that is necessary and to do so without federal intervention, he noted.

Ms. Pusey stressed that the AIA is not advocating taking away the power of state regulators and legislators to define the content of insurance policies at the state level. “But beyond that, it seems that the overall regulation of national companies should not be subject to a 50-state matrix,” she said.

At least one agent group has expressed fears that a dual-charter system would prove to be costly for state economies. Patrick C. Moore, president, and Paul W. Babbitt, state national director of the Independent Insurance Agents Association of New York in Syracuse, in a letter to the editor in NU's Sept. 3, 2001 edition, noted, among other criticisms, that under a dual-charter system, “we may surely expect a loss of jobs and tax revenues, as insurers close local offices and consolidate their operations. This is bad for New York and for all states where insurers have significant economic impact.”

ACLI's Mr. Hughes responded that states are unlikely to lose tax revenues because insurers will be paying taxes under either a federal charter or a state charter. But to the extent that insurance companies gravitate toward a federal charter, the states that charge a fee for regulating national insurers will have to stop doing so, he added.

As for job losses, he stated that these would most likely be at the state regulatory offices, where staff might have to be reduced in the event of a “significant shift” by companies to a federal charter.

Finally, Ms. Pusey noted that in the insurer-group optional federal chartering proposals, “the similarities outweigh the differences tremendously” in that all of the plans address “the regulation of insurance companies, not the regulation of insurance.”

“We all have the same type of approach for the same reasons–the uniformity, quicker response, the sort of one-stop shopwhich some of our companies that operate globally and nationally will need,” said Ms. Pusey.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, January 28, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

Contact Webmaster