Joe Beneducci, president and chief operating officer of Novato, Calif.-based Fireman's Fund Insurance Co., has urged lawmakers to grant insurance carriers their choice of state or federal regulation. INN asked him about those options.INN: States regulate the insurance industry. Why would some insurers want to switch to federal oversight?
JB: I don't have anything against state regulators. They work hard to do a good job under the current system. But states base their evaluation of rates on current policies. That makes it difficult to bring new products to market, so carriers can't respond to consumers' needs.
INN: Can you give an example?
JB: A few years ago we asked a group of commercial customers to come up with a new product. We wanted them to name the most important risk they faced and tell us how we could help them mitigate it. Their response was that their biggest fear was losing data like customer and vendor lists.
We looked for a solution that would go beyond paying them a claim if they lost their data. We wanted to help prevent that loss or help them recover if the loss occurred. With help from a third-party, we found we could back up the data and restore the insureds' operations overnight.
We ran this idea by state regulators to see how they would regulate it. The variety of responses shows how arduous this process has become. Some states said they would regulate the service just like any other insurance product, others said they would allow us to offer the product only in certain ways and only to select customers, and some said they wouldn't allow us to sell the product at all. The fourth alternative was to allow us to sell the service but only if we could show loss experience.
It's a non-starter. How can I show loss experience on something we've never done? Regulation is focusing on the system rather than the consumer. The public told us what was needed. We tried to create it and couldn't deliver.
INN: Does state regulation make insurance more of a commodity?
JB: We need to be more innovative and deliver solutions that consumers ask for. That helps companies differentiate themselves. Today, we really don't have that ability because state regulation is based on the past.
INN: You've been quoted as saying state regulation costs Fireman's Fund $15 million a year. How much would you save under federal regulation?
JB: All $15 million. That's what we're spending today just to manage the form filings for rates. We file more than 2,000 forms a year for Fireman's Fund. That's not an insignificant number, and it's not an insignificant effort.
I would much rather see that money applied to customer service or new products. I could easily see it applied to claims service.
INN: What form might federal regulation take?
JB: Optional federal charters would bring a fundamental shift in regulation. States now regulate all pricing, forms and filings. That means any price change for any product needs state approval. The federal government would not worry about form filings. Instead, the federal charter would focus on market conduct and solvency issues for carriers.
INN: Why would federal regulation improve the process?
JB: We're dealing with 51 jurisdictions under the current system. It's like multiplying the FDA 51 times.
Besides, the world is shrinking. Our commercial customers have operations all over the country if not all over the planet. Even in personal lines, policyholders have vacation homes and regular residences in different states.
To say one state jurisdiction should regulate how a consumer has access to insurance coverage and to determine the rates and forms and products the consumer sees is putting us at a severe disadvantage as the global economy evolves.
INN: Why wouldn't the feds set prices?
JB: No one's lobbying for that alternative. The legislators who have introduced bills for federal regulation have made it clear they want an open market that removes unnecessary restrictions.
INN: Fireman's Fund is a major carrier. Would federal regulation make sense for smaller insurers?
JB: I won't speak for smaller carriers. Some of the testimony I've heard from smaller companies is that they might feel more distant from the federal regulator than a state regulator.
There are people who may decide state regulation is more beneficial-for those carriers so be it. But don't decide for everyone else.
INN: Is it unusual to grant an industry a choice of regulators?
JB: There is precedent in the financial services industry and with the banking industry in particular.
INN: Is legislation pending before this session of Congress?
JB: Bills were introduced in both houses last year but did not become law. Legislation has not been brought before the relevant committees this session but the debate is continuing. This is not a short-term initiative.
INN: What can supporters of federal regulation do?
JB: They can continue to educate members of Congress and consumers on the complexity of the regulatory environment and they can explain why that isn't helping the public.
