Sam Friedman at National Underwriter has posted a nice piece discussing the state of insurance regulation in the U.S., and is soliciting feedback:
I myself have been a backer, for the most part, of state regulation–certainly not because it’s been done well, but because I have no confidence the federal government (especially the current administration, which has taken incompetence to an art form) could ever do it any better. Indeed, they might do a much worse job of protecting the consumer’s interest.
However, I have never been a fan of the byzantine structure set up by the NAIC to establish some semblance of national order over the diverse, often conflicting and always expensive state regulatory system. Entire generations seem to pass before a model bill does. It certainly isn’t difficult to pick out the NAIC’s flaws. What’s hard is figuring out how best to improve the Rube Goldberg-like system we have in place.
If anyone has the courage to respond (even anonymously), please speak up! Is the NAIC salvageable, or should we scrap the whole system in favor of an optional federal charter?
I share Sam’s general position on insurance regulation. Dealing with 51 state regulatory bodies can be unpleasant… some more so than others. Having a light-handed nationwide set of regulations to abide by would be refreshingly pleasant, but if the entire country became a Massachusetts or a California… I’m going to have a nightmare tonight just based on that thought.
However, the idea of optional federal chartering has intrigued me, if only because of the potential of having access to the best of both worlds. In states that are more-lightly regulated than the federal entity, a carrier could do business in a state-chartered entity. For more difficult states, a federally-chartered entity could be available.
Of course, if such mixing-and-matching weren’t possible…then yes, the idea of moving to pure federal regulation would be troubling to me. At least in the current scheme, if one DOI adopts socialism, there are plenty of other states in which to seek profit. However, if a federal regulatory entity adopted a foolish stance….
If a solution needs to be found, and if OFC turns out not to be a viable option, then perhaps my alternative would be for the federal government to prescribe a new uniform set of regulations, superseding state regs, and leave the actual enforcement of those regs (and some limited local customization) to the states.
Such a scheme would, theoretically, reduce the heterogeneity in state regulation, while still allowing a “local” emphasis in state regulation, to hopefully balance the local concerns of consumers and regulators.
(OK, to be honest, my ideal solution would be a lack of regulation. But I’m trying to be at least somewhat realistic here.)
However, despite my offering that idea, I am leery of the idea of change, if only because of a great deal of cynicism towards the idea of what bureaucrats at the state and federal levels might be capable of.