Posted on 16 Jun 2009
Robert Rusbuldt, president & CEO of the Independent Insurance Agents & Brokers of America (IIABA or the Big "I"), sent a letter last week to the Obama administration urging them to oppose any financial services regulatory reform efforts that could imperil the strength and stability of the state system of insurance regulation. The administration is meeting today to discuss reforms in the financial sector.
“Insurance regulation is not perfect and improvements certainly should be implemented,” says Rusbuldt. “However, state regulators have done and continue to do a solid job of ensuring that insurers are solvent and insurance consumers are protected and receive the insurance coverage they need. Given today’s tough economic environment, we believe that establishing national standards where necessary and where appropriate would not jeopardize or undermine the viability of the state insurance regulatory system and the 13,000 professional regulators who have an effective track record with respect to solvency and consumer protections.”
Following is the text, as reprinted from the IIAA website:
Dear Dr. Summers and Secretary Geithner:
On behalf of the Independent Insurance Agents & Brokers of America (IIABA) and our network of over 300,000 agents, brokers and employees nationwide, I write to urge the Administration to oppose any regulatory reform or financial services restructuring efforts that could imperil the strength and stability of the state system of insurance regulation. The Administration faces many challenges as it considers how to improve and strengthen the current financial services regulatory regime, but the success of state insurance regulation – especially in recent months – offers a vivid reminder of that system’s benefits. IIABA strongly opposes displacing effective regulation with deregulation and an unproven regime that could be harmful to consumers, such as through current proposals to allow for an optional federal charter (OFC) for insurance.
The financial services crisis has reinforced the merit, value, and responsiveness of state insurance regulation and reminded all observers of the significant perils associated with regulatory arbitrage. The insurance sector (and the property-casualty industry in particular) has weathered the financial storm with much greater success than other elements of the financial services world. The insurance arena is certainly not immune from the effects of the current crisis, but it is clear that the insurance market was not the cause of our financial problems. As you therefore consider reforms to the financial services markets to protect against similar problems in the future, please be mindful of the differences between the recent experiences of the insurance industry and the other financial sectors. While the insurance business would unquestionably benefit from greater efficiency and uniformity in certain key areas of regulation, we ask that you be extremely cautious in the consideration of wholesale changes that could have an unnecessarily disruptive effect on the market and consumers. The insurance market is extremely competitive, providing consumers with many choices, and we are concerned that federal regulation would lead to consolidation and the formation of a new class of companies that immediately would be considered “too big to fail.”
Unfortunately, some in the insurance industry believe that now is the time to pursue deregulatory proposals and to establish a new and untested functional federal regulator for insurance. The establishment of an OFC system will result in regulatory arbitrage, with companies choosing how and where they are regulated thereby pitting one regulatory system against the other in a race to the bottom. Such a proposal, which turns its back on over a century of successful consumer protection and solvency regulation at the state level, seems to make little practical sense in this current market environment where we want to ensure that those who are being regulated are prevented from cherry-picking among competing regulators. This regulatory cherry-picking does not occur in the insurance market today because the state system does not allow for companies and agencies to apply less stringent day-to-day consumer protection laws of their home state to other states where they conduct business. Fortunately, there is a growing consensus among policymakers that an OFC would create regulatory arbitrage, thereby actually weakening insurance regulation to the detriment of consumers.
Insurance regulation is not perfect, and improvements certainly should be implemented. However, state regulators have done and continue to do a solid job of ensuring that insurers are solvent and insurance consumers are protected and receive the insurance coverage they need. Given today’s tough economic environment, we believe that establishing national standards where necessary and where appropriate would not jeopardize or undermine the viability of the state insurance regulatory system and the 13,000 professional regulators who have an effective track record with respect to solvency and consumer protections.
We understand that the troubles of AIG demonstrate the need to scrutinize the limited group of unique entities that engage in services or provide products that could pose systemic risk to the overall financial services market. However, the property-casualty insurance market appears unified in its belief that our industry poses little, if any, systemic risk. While there is a need to have limited systemic risk oversight at the holding company level, we hope the Administration recognizes that the establishment of such systemic risk oversight and the maintenance of a strong and vibrant system of state insurance regulation are not mutually exclusive outcomes. We believe that any such systemic risk regime should at all times work through existing state regulators if problems are identified and should not engage in day-to-day insurance regulation. States already have strong financial and market regulations in place for insurers and effective solvency regulations to protect consumers, so the insurance market should not be grouped with other financial services industries under a systemic risk umbrella that could include insurer solvency regulation. While we cannot assess whether other financial services industries need more effective solvency regulation at the federal level, we believe that insurance solvency regulation, especially for the property-casualty segment, should remain the province of the functional regulators – the states.
Many lessons can be learned from the economic crisis we are currently in, but one of the most poignant is that the primary responsibilities of any financial services regulator should be both the protection of the consumer and the solvency of the institution. Most observers agree that state regulation of insurance has excelled at these responsibilities.
Thank you for considering our views on the issue of insurance regulatory reform, and please know that we are committed to working with you to improve insurance regulation. Please do not hesitate to call on us at any time if we can be of any assistance.
Robert A. Rusbuldt
President and CEO