Washington, D.C. - There is a clear economic case for structural changes in insurance regulation, namely an optional federal charter (OFC), that could benefit both consumers and life insurers, according to a study conducted by the American Council of Life Insurers (ACLI), Washington, D.C., and Computer Sciences Corporation, El Segundo, Calif.
The findings of the 18-month study are based on responses to questions about regulatory costs provided by more than 100 companies responsible for more than $160.2 billion in premiums and more than $1.5 trillion in assets within the U.S. life insurance market. The sample represents more than 41 percent of the U.S. life insurance market based on both premiums and assets.
Structural changes highlighted in the study were those drafted in the ACLI's OFC proposal, which aims to give life insurance companies the choice of a new federal regulator or continued state regulation. ACLI believes an OFC, based loosely on banks' regulatory model of state and federal regulatory options, best addresses the needs of 21st century consumers and companies.
The study revealed the following points:
* Regulatory cost is a major part of a life insurer's cost structure, totaling more than $11 billion over a ten-year horizon for the entire industry. Redundancies in state laws, lack of uniformity, slow product approvals and regulatory process complexities significantly contribute to these high costs.
* A life insurance carrier's regulatory expenses typically cover far more than fees, with the greatest percentage of cost in the areas of information technology and product development.
* A single regulatory authority could reduce costs associated with complying with multiple regulatory jurisdictions.
* Industry-wide regulatory costs should not increase under an OFC.
* The area of OFC uniform product approval and producer licensing rules would realize the greatest reduction in costs.
* Under a streamlined regulatory system contained in the OFC proposal, the level of competition for the consumer's insurance dollar should increase. Insurers will not have to postpone or shelve product rollouts as they do today because of state regulatory delays and differences in states laws.
"This report represents a significant contribution to the debate over the future of insurance regulation," said ACLI President & CEO Frank Keating. "It should prompt congressional action on our OFC initiative."
"Life insurers need a modernized regulatory structure to better serve our customers and address competitive pressures from banks, securities firms and even overseas financial services firms. Our OFC proposal shows the way, and this report helps make the case for an optional federal regulator," Keating said.
"We spent 18 months surveying the industry to gather and review quantitative data regarding regulatory costs," said Michael Risley, president of the Life and Annuity division of CSC's Financial Services Group. "This report reveals important new information and, like ACLI, we believe it will contribute significantly to the debate on modernizing insurance regulation."
Source: American Council of Life Insurers
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