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Federal vs. state regulation.

Since the insurance industry continues to rage over regulation, it is no small wonder that the first general session of the 23rd Annual Southeastern Regional Education Conference presented a panel debate over the choice between federal or state solvency standards. As Paul Brown, director of government and public affairs and general counsel for RIMS, stated, "The debate over state vs. federal regulation of the insurance industry has often been described as the choice between 50 monkeys and one gorilla ... 1 see it more as the choice between 50 poodles and one doberman; the poodles look great, but they just don't have much bite." Mr. Brown presented the case in favor of federal regulation, pointing to RIMS April 1992 public endorsement of a federal regulatory role in the insurance industry. "Large companies should not have to jump through 50 regulatory hoops. Federal regulation would allow transactions between large commercial insurers and large commercial insureds to pass state regulators by."

. Mr. Brown believes the National Association of Insurance Commissioners (NAIC) is losing sight of large commercial insureds and the reality of the marketplace. "We can't make it clear to the state insurance departments how important captives are to large insurers," he said. "State departments often see anything new in the insurance marketplace as a threat. If they can't regulate it, they don't like it." In closing, Mr. Brown said although the current bill for federal regulation (H.R. 4900) needs work, it would be an improvement over the current system of state regulation.

Conversely, David Brummond, vice president and assistant general counsel of the National Association of Independent Insurers (NAII), argued in favor of state regulation. According to Mr. Brummond, the NAIl issued a report last April on the health of the state system. The results of the two-year study revealed that "the state system is structurally sound, but needs major changes to make it more efficient and responsive." Some problems he noted include rate suppression, difficulties with product pricing, inefficiencies with liquidation and duplicate costs. However, the realistic options to a state system are less desirable than the current system, according to Mr. Brummond, who believes that a federal role would result in costly and inefficient dual regulation. He also pointed out the potential dangers of parallel systems, which could result in an unequal playing field since both systems would be unlikely to create and implement identical standards. The insurance industry could suffer the same detrimental effects from federal regulation as the banking industry, without being any more capable of preventing insolvencies. Mr. Brummond urged the audience not to abandon the state system. "Change must come within the state system-not by eliminating it," he said.

The final speaker, Patrick Foley, vice president and associate general counsel for American International Companies, took the middle ground in favor of a two-tiered system, such as the one proposed in H.R. 4900. "State regulation is out of date for today's global economy and market. We are being regulated to death, but only for part of the market," said Mr. Foley. He favors a two-tiered system where "commercial insurance would be regulated at the federal level while the states would maintain their regulation over the the small businesses."

According to Mr. Foley, federal regulation would increase competition by bringing business back to the United States. He believes H,R. 4900 needs to be made more workable and, like his fellow panelists, has no doubt that some change is necessary. "We are in a modern, global market economy and 50 state horse and buggy rules don't apply anymore."
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Title Annotation:23rd Annual Risk and Insurance Management Society Southeastern Regional Conference; insurance industry
Author:Christine, Brian
Publication:Risk Management
Date:Nov 1, 1992
Words:592
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