As president of the National Conference of Insurance Legislators (NCOIL), an organization of state lawmakers dedicated to sound insurance public policy, I know first-hand the benefits of state regulation for insurance consumers. NCOIL lawmakers care deeply about the financial security and protection of our friends, families, and neighbors.
We avidly support insurance reform and work toward necessary modernization. We strongly believe that state officials—who are more experienced and more in tune with the needs of their constituents—are the appropriate regulators of insurance. We conversely believe that the federal government—which is less experienced in insurance matters, and more removed from constituents—is ill-advised in the recent efforts on the part of some federal officials to wrest regulation from the states in a barrage of schemes that include an optional federal charter for insurers, a federal super-regulator for systemic risk, and a Consumer Financial Protection Agency, which for insurance would distance the protected from the protector.
We advocate state regulation because we understand the importance of local communication and long-standing personal connections. Insurance consumers expect elected representatives—much like their insurance agents—to be accessible when questions arise and abuses occur. They count on us to ensure that their insurance companies can deliver. Particularly now, with consumers struggling to manage their personal and financial lives, we can’t weaken the bond of individual relationships.
For 150 years, the states have tailored a system based on the uniqueness of individual markets and constituencies and the successful interaction between insurance businesses, policyholders, as well as their state regulators. State insurance departments provide services to aid and educate consumers about insurance, while also conducting market conduct examinations to review company behavior and compliance with state laws and regulations. State legislators have developed valuable consumer protections, including unfair trade practice laws and guaranty funds to pay claims in the event of an insurer’s insolvency. The comprehensive state-by-state framework of consumer protection and market conduct laws offers speedy recourse to policyholders and the producers who represent them.
State legislators strive to provide the necessary tools to agents and brokers, who are entrusted to aid in consumer decision-making. We try to ensure by legislation that producers meet certain personal and professional standards. And as we continue to encourage enhanced reciprocity and uniformity in producer licensing, we believe that state-based regulation is the strong foundation that supports a very successful U.S. insurance marketplace.
As compared with state successes, the federal government has a poor track record when it comes to financial services. This is evidenced by ERISA, the savings and loan crisis of the late 1980s and early 1990s, and FEMA mismanagement in the wake of Katrina and other major natural disasters. More recently, the U.S. mortgage and credit default swap crises have placed us in a financial condition rivaling that of the Great Depression. It was, after all, federal legislation that effectively exempted credit default swaps—transactions that, due to activity by its federally regulated Financial Products Division, led to the downfall at AIG—from state and federal regulation.
Today, a system with a legacy of success is being challenged by untried theory and unrealistic speculation. We should not fall prey to notions of reform that cannot live up to their expressed intentions. Those of us participating in the state insurance system—legislators, regulators, producers, and so many others—know the contributions we make to individual consumers and to the broader financial markets. Our system has survived and thrived because of—not despite—the fact that it is built on the principles of accessibility, accountability, and community. As in the past, we will continue to adapt to new products and new circumstances in an even more rapidly evolving marketplace. NCOIL believes that now is the time to stand up for state regulation and to declare that personal relationships still matter.