NCPA - National Center for Policy Analysis


April 17, 2008

Because of a Supreme Court decision nearly 140 years ago, the states have sole regulatory authority of insurance.  What has resulted since is a bureaucratic cluster of 51 different regulators (every state, plus the District of Columbia) overseeing their individual jurisdictions, punishing American consumers and insurance providers alike, says Ed Royce (R-Calif.), a member of the House Financial Services Committee.

For example:

  • A company looking to introduce a new product throughout the country has to get approval from every regulator.
  • All have their own approval process, so the national rollout of a new product often takes months, if not years.
  • It should come as no surprise that the last major personal line, property/casualty product to be introduced nationwide was homeowners' insurance in 1959.
  • Additionally, while the federal government's price controls collapsed in failure the 1970s, they live on in state capitols throughout the country.

Treasury Secretary Henry Paulson called for the creation of an optional federal charter (OFC) for property/casualty and life insurers, reinsurers, and insurance agents and brokers.  This option is geared toward more efficient, not simply additional, regulation. By providing an alternative to the state-based oversight, an OFC would establish a national regulator for the industry and diminish the ability for state regulators to manipulate the market.  As a result, American consumers would be on the receiving end of a more effective system, says Royce:

  • The nonprofit American Consumer Institute recently found that the cost of excessive regulation at the state level is $13.7 billion annually -- paid for by insurance buyers through higher premiums.
  • A central tenet of an OFC would be consumer protection.
  • Policyholders will benefit from an increased number of products at lower rates.
  • They will also benefit from more centralized regulation geared toward protecting buyers against bad actors, and toward making sure companies have the ability to meet their claim obligations.

Source: Ed Royce, "The Forgotten Financial Sector," Wall Street Journal, April 16, 2008.

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