When framing their positions in the debate over an optional federal charter for insurers, both proponents and opponents of the idea make pains to emphasize protection of the consumer.
Yet, Jonathan Steiman, analyst, financial services technology for the New York office of London-based Datamonitor, contends that in the case of OFC opponents, concern for the consumer takes a back seat to maintaining the status quo.
Steiman singles out the Independent Insurance Agents and Brokers of America (IIABA), whose president and CEO, Robert Rusbuldt, recently wrote an open letter to President Obama encouraging retention of the state-based regulatory system. “The IIABA's reasons for opposing the development of an effective federal regulator are simple; a federally regulated insurance commission would accelerate the amount of premiums sold direct over the internet or through call centers,” Steiman writes. “This is good for both insurers and consumers, but terrible for agents and brokers, which has provoked the IIABA's tenuously argued opposition.”
According to Steiman, one of the primary benefits insurers would realize in a federally-regulated insurance market is a greater ease when moving into new territories.
“A state-based regulatory regime makes it difficult to expand because writing business in a new state means getting licensed and regulated by a new entity, which is a timely and costly feat,” he says. “In short, the current regulatory regime is a classic barrier to entry: Enterprising players with hopes of selling direct cannot achieve the proper scale. By moving to a federal regulator, insurers would be able to expand into new territories with greater ease. Such expansion would make a direct-to-consumer offering more viable, mainly because direct sales require a national branding effort.”
What’s more, Steiman says carriers won’t be the only beneficiaries of economies of scale. “Currently, state commissions have a combined budget of roughly $1.5 billion,” he notes. “A federal office could probably make do with less.”
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