If there’s one thing the AIG debacle shouldn’t teach us, it’s to let companies choose their own regulator. But that’s the plan that’s been tossed out by the insurance industry and its allies. Two members of Congress put made it official in a bill introduced yesterday that would allow insurance companies to avoid state regulation by making their charters federal.
The bill piggybacks a long-time dream of big property-casualty insurance companies onto the financial reform debate. They want it to sound like the bill would increase regulation. After all, if there’s no federal regulation of insurance now, a new federal regulator means more oversight, right? Not at all. The bill’s “optional” federal insurance charter would give insurers the opportunity to escape strong state-based regulation of insurance rates, premiums, underwriting and claims practices and solvency requirements.
As we wrote to Treasury Secretary Timothy Geithner on Tuesday:
Policyholders have been protected throughout the current financial crisis because insurers regulated by the states were not free to take the perilous risks condoned by weak federal rules and listless federal overseers. That is why the optional charter is opposed by the National Association of Insurance Commissioners and the nation's consumer groups.
While we do not know how successful any financial system overhaul will be in the long run, we do know that the system of state-based insurance regulation neither created the meltdown nor allowed any American motorist, homeowner or business owner with insurance policies (or a single claimant) to face any harm in the wake of the meltdown. And, further, we are certain that in order to watch out for regulatory gaps with potentially systemic impact, there is no need (other, perhaps, than as a political gesture to big insurers and their advocates on Capitol Hill) to allow any insurer to be free of any existing state consumer protection.
Better yet is the bill’s official title: “National Insurance Consumer Protection Act.” Nothing is less likely to protect consumers than taking oversight of insurers away from locally accountable insurance commissioners and preempting state consumer protections. It’s the kind of Capitol double-speak that makes the public distrust what goes on inside the beltway.