Regulation

Seen in a Reuters story about Senate hearings regarding the Optional Federal Charter concept:

"The insurance industry is very pragmatic in their selection of a preferred regulator; they always favor the least regulation."

Comment made by Travis Plunkett, legislative director with the Consumer Federation of America

Having just been through a wave of filings for a new countrywide product, during which we were asked the same questions over and over by the various states…and also experienced conflicting demands, sometimes even within a given state…I wonder why it might be that insurers favor less regulation.

One of the things I learned during my days working on credit modeling is that banks are very thankful for the freedom arising from the very light hand of federal regulation, and they are not shy at all in using that freedom to maximize revenue.

Considering some of the games banks play with credit card customers, I’m not at all unhappy with seeing some new rules proposed by the Fed:

The provisions addressing credit card practices are part of the Board’s ongoing effort to enhance protections for consumers who use credit cards, and follow the Board’s 2007 proposal to improve the credit card disclosures under the Truth in Lending Act. The FTC Act proposal includes five key protections for consumers that use credit cards:

• Banks would be prohibited from increasing the rate on a pre-existing credit card balance (except under limited circumstances) and must allow the consumer to pay off that balance over a reasonable period of time.
• Banks would be prohibited from applying payments in excess of the minimum in a manner that maximizes interest charges.
• Banks would be required to give consumers the full benefit of discounted promotional rates on credit cards by applying payments in excess of the minimum to any higher-rate balances first, and by providing a grace period for purchases where the consumer is otherwise eligible.
• Banks would be prohibited from imposing interest charges using the “two-cycle” method, which computes interest on balances on days in billing cycles preceding the most recent billing cycle.
• Banks would be required to provide consumers a reasonable amount of time to make payments.

This article at Insurance Journal caught my eye:

The Professional Insurance Agents Association of Ohio (PIA) recently testified before the House Insurance Committee in support of a resolution for Ohio to formally oppose any “new layers of needless federal bureaucracy to insurance regulation.”

Of course, I had to see that comment about an hour after I received conflicting demands from state regulators on a couple of filings I have outstanding. And that’s just two lines for one product in one state. There are fifty other jurisdictions I get to deal with in the U.S. too.

Some days, it’s very easy to wish for a single federal regulatory agency to deal with.

Seen in the Rocky Mountain News:

Democrats plan to introduce bills to require health insurance firms to get prior approval for rate hikes, punish them for improper denial of claims and encourage efficiencies.[...]

Rep. Morgan Carroll, D-Aurora, said insurance companies are allowed to increase rates at will and get approval from the Division of Insurance later. She said they are rarely punished if increases are found to be unjustified.

“This way, people will know they are getting good rates, they are getting what they paid for and costs will go down as they become more efficient,” she said.

Carroll said she is considering adding auto insurance in a separate measure.

House Speaker Andrew Romanoff, D-Denver, is sponsoring a bill that would impose penalties if a claim is improperly denied.

Since when has regulation promoted efficiency? It’s been my experience that the two concepts tend to be opposites.

A far greater incentive to become efficient…as well as providing better service…is the knowledge that your competitors might do just that, and they have the potential to quickly, easily reflect that in their rates, without having to be concerned about an inability to respond to trend in the future.

Besides, on the health insurance front, such moves seem doomed to have limited effect, seeing as how most Americans get their health coverage through plans which are federally regulated, exempt from state interference (for better or worse).

After the past couple of weeks, that the feds would want to be more actively involved in regulating industry should be no surprise. Seen in the Wall Street Journal (subscriber link):

The U.S. Treasury Department has chosen sides in the fight over state versus federal insurance regulation, standing squarely in the corner of large insurers who want the option to be regulated at the national level.

An executive summary of the Treasury Department’s blueprint for overhauling regulation of financial firms calls for the creation of an Office of National Insurance to be housed within Treasury. The new regulator would have oversight over insurance firms that chose an optional federal charter.

The support for the federal charter marks the first time the Bush administration has officially weighed in on the long-running debate over insurance regulation. States currently have the authority to oversee insurers, and though efforts have been made to standardize forms and other requirements, a number of differences still exist between states.

Professionally, I’d welcome a single regulatory body to deal with. I’ve spent too effing much of my time recently working on state filings for countrywide rollouts of new specialty commercial lines products. In fact, my calendar this coming week is almost full with time blocked off to respond to frequently conflicting requests from different states’ DOI’s. Give me one regulatory body to deal with, rather than 52, and I could get back to doing real work.

However, as an armchair consumer advocate, I do have some concerns. Consider, for example, some recent “fun” my wife and I have had with health insurance, made possible by a lack of consumer protections in federal regulation.

Sure, the feds do a pretty good job in protecting the public from fiscal insecurity of regulated businesses, but otherwise consumer protection is seemingly a heretical concept among federal regulators.

Seen in a wire service story:

The 2nd U.S. Circuit Court of Appeals said New York’s law — the first of its kind in the country — interferes with federal law governing the price, route or service of an air carrier.

The law was passed after thousands of passengers were stranded aboard airplanes for up to 10 hours on several JetBlue Airways flights at Kennedy International Airport on Valentine’s Day last year. They complained they were deprived of food and water and that toilets overflowed. A month later, hundreds more passengers of other airlines were stranded aboard planes at JFK after a daylong ice storm.[...]

The court said that while the goals of the law were “laudable” and the circumstances prompting its adoption “deplorable,” only the federal government has the authority to pass such regulations.

“If New York’s view regarding the scope of its regulatory authority carried the day, another state could be free to enact a law prohibiting the service of soda on flights departing from its airports, while another could require allergen-free food options on its outbound flights, unraveling the centralized federal framework for air travel,” the court wrote.

I agree with the ruling. For concerns that span multiple states, regulatory authority rests with the federal government.

While I’m definitely not a fan of excessive regulation, I also think that in many respects the federal government has in the past few years shirked its responsibility of providing even the bare bones protection against the worst excesses of big business I’d reluctantly tolerate. Imprisoning folks on a grounded jet for hours falls in the category of “worst excesses”.