One of all of the critiques offered by opponents of an optional federal charter (OFC) for insurers, one of the most pointed is that, once enacted, an OFC allow an insurer to seek out the most lenient regulator.

Frank Keating, president and CEO of the American Council of Life Insurers, begs to differ. In a letter to Treasury Secretary Timothy Geithner, Keating reiterated the group’s support for an OFC and argued that enactment would lessen, not exacerbate, the problem of regulatory arbitrage.

“Concerns over regulatory arbitrage, which have been raised principally by state insurance regulators opposing an optional federal charter, are without merit,” Keating wrote. “The life insurance business is not seeking, nor would this Congress ever consider enacting, a federal insurance regulatory system that is weak in terms of consumer protections and solvency oversight.” 

Keating predicted that federal system could be stronger than the best state regulatory systems.

“If anything, a properly constructed optional federal charter would result in the states being challenged to raise their standards to meet those of the federal regime,” he wrote. “And it should be kept in mind that regulatory arbitrage can occur today given the fact that insurers have the right to redomesticate, and regulation from state-to-state is anything but uniform.  The creation of an additional but strong federal option can only encourage a flight to quality.”

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