Washington - Life insurance costs could be reduced by billions of dollars annually under an optional federal chartering system, according to a new study, comprised of research from Steven Pottier, associate professor of insurance at the University of Georgia's Terry College of Business. 

The potential cost savings relating to insurers coming under the authority of a single regulator, as opposed to the current system of multiple regulators, exceeds $5.7 billion annually, according to the American Council of Life Insurers (ACLI)-sponsored study entitled "State Regulation of Life Insurers: Implications for Economic Efficiency and Financial Strength."

Washington-based ACLI says the study's figure does not take into account other potential benefits of an optional federal charter, such as increased competition and improved speed-to-market for new products.

"An optional federal charter system would allow life insurers to conduct business either under the existing state regulatory system or a new federal system, depending on which better suits their customer base," says Frank Keating, president and CEO of the American Council of Life Insurers. "The result would be a more efficient regulatory structure that imposes fewer costs on insurers, costs that are often passed on to consumers."

An optional federal charter system, Keating said, would allow insurance companies to eliminate these unnecessary costs by coming under the authority of a single federal regulator, if they so choose.

The charter has its share of supporters and adversaries. Zurich, Switzerland-based Swiss Re believes giving reinsurers a federal regulation option would facilitate a more effective flow of risk-bearing capital, allowing them to better serve the needs of their clients and the nation's policyholders.

"Swiss Re believes an optional federal charter would make the U.S. more competitive and more responsive to the changing risk and regulatory landscape, resulting in lower costs, greater efficiency and enhanced risk management. This benefits U.S. consumers, U.S. business and our economy," says Roger Ferguson, Chairman of Swiss Re America Holding Corp. "Further, Swiss Re is not advocating substitution of the state system of regulation, but rather supplementing it."

Another supporting organization—Agents for Change—believes an optional federal charter will help producers better serve their customers. "Consumers are frustrated with the lack of choice among insurance products and coverage in the current system," says Robert Poli, chairman of Agents for Change. "They don't understand why I cannot continue to serve them—many of my customers view me as a trusted financial advisor—if they move to a state where I am not licensed. Similarly, they do not understand why I can sell a product in one state but not another. This makes no sense in the 21st century."

Philadelphia-based Lincoln Financial Group and Columbus, Ohio-based Nationwide also support the charter because of consumer concerns. "As an industry, our most pressing challenge is meeting the complex needs of the 78 million baby boomers preparing to begin their lengthy retirement years. The passage of this legislation is imperative to align regulations with consumer rights and demand for timely solutions," says Jon Boscia, chairman and CEO of Lincoln Financial Group.

"In this 21st Century financial services arena, it is crucial to have the ability to compete in the global marketplace in order to provide consumers with quality products that protect their financial well-being," adds Pat Hatler, executive vice president and chief legal and governance officer at Nationwide.

Two organizations— Indianapolis-based National Association of Mutual Insurance Companies (NAMIC) and Alexandria, Va.-based Independent Insurance Agents & Brokers of America (IIABA)—have publicly opposed the federal charter. "While we acknowledge that the current regulatory system must be reformed, we think that those reforms can take place at the state level rather then creating an additional layer of federal bureaucracy that the insurance industry and their consumers would have to deal with," says Justin Roth, NAMIC's senior federal affairs director. "In fact, 17 states have adopted regulatory reforms in the last four years. Congress can play a meaningful role in helping to modernize insurance regulation while not adding additional regulation at either the state or federal level."

On April 27 the IIABA hosted its annual Big "I" Legislative Conference & Convention. Each year during the legislative conference, Big "I" agents and brokers hold hundreds of meetings with their elected officials on Capitol Hill to share their perspective on how legislation affects their business. One of the top issues this year, according to IIABA, was the McCarran-Ferguson Act.

The NAMIC created a resource center dedicated to addressing the concerns and misconceptions about the McCarran-Ferguson Act. The McCarran-Ferguson Act Resource Center found online at www.namic.org/policy/mfa.asp offers a plethora of objective information on the law that is vital to assuring a competitive insurance marketplace and stable rates for consumers.

Included at the resource center are:

  • Explanations of the Act and how it promotes competition within the insurance industry
  • Issue statements and position papers
  • NAMIC news releases
  • Industry coverage
  • Opposing viewpoints
  • Action steps to prevent repeal
  • Bloggers' comments

Sources: Agents for Change, American Council of Life Insurers, Independent Insurance Agents & Brokers of America, INN archives, Lincoln Financial Group, National Association of Mutual Insurance Companies, Nationwide, Swiss Re

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