Study bolsters case for single federal regulator of life insurance

Industry would be able to save money by reducing the filing of regulatory reports, streamlining consumer complaints and undergoing fewer exams.

The American Council of Life Insurers released a report Wednesday saying the industry could save more than $5.7 billion annually if it were under the jurisdiction of a single federal regulator rather than state oversight.

The study, conducted by Steven Pottier, associate professor of insurance at the University of Georgia, found the $5 trillion life insurance industry would be able to save money by reducing the filing of regulatory reports, streamlining consumer complaints and undergoing fewer exams.

"The cost savings would be associated with rather than responding to the regulatory requirements to 51 jurisdictions -- which vary some from one jurisdiction to another -- you are going to be under one primary regulatory," Pottier said.

ACLI President Frank Keating said his group will use the study to make a pitch in Congress for legislation that would allow insurers to choose whether to continue to be regulated by states or opt for federal supervision.

The legislation, sponsored by Sens. Tim Johnson, D-S.D., and John Sununu, R-N.H., would allow insurers to be regulated like banks, which operate under the supervision of states or the federal Office of the Comptroller of the Currency. The bill would require insurers that choose jurisdiction under a new federal regulator to continue paying their premium taxes to states where they operate.

"A number of the Hill staff made it clear to us it would be very helpful in the debate to have a statistical basis for our argument that this is an ossified regulatory system, it is delay prone, it is highly expensive and in the long term detrimental ... to the average consumer," Keating said. The council will issue reports later detailing how an optional federal charter can benefit sellers of life insurance as well as state government.

The push for an optional federal charter has divided the industry between ACLI and some major international carriers against bill opponents such as the Independent Insurance Agents & Brokers of America and the National Association of Mutual Insurance Companies, which argue the measure would create a regulatory nightmare, increase costs and bureaucracy and place consumers at a disadvantage because they would not have the responsiveness of local regulators.

"There is nothing to ensure that these alleged cost savings will be passed on to consumers. In fact, the [IABA] strongly believes that the so-called optional federal charter would be harmful to consumers," said Charles Symington Jr., senior vice president for government affairs for the Independent Insurance Agents & Brokers of America.

Keating said the cost savings with a federal charter amount to roughly 1.25 percent of premiums.

"I would anticipate that significant cost reductions would be received by the purchasing public," Keating said. "What exact dollar amount that will be passed on to consumers will vary company by company ... but I would anticipate significant cost savings."

House Financial Services Capital Markets Subcommittee Chairman Paul Kanjorski, D-Pa., said earlier this year he believed the life insurance industry could benefit from flexibility in selecting either a state or federal regulator because its products are more national in scope, but ruled out other lines such as property and casualty.

Keating said his group is part of a unified effort in support of an optional federal charter for most lines of insurance -- outside of medical -- but added that those decisions will be left to lawmakers to determine what is politically feasible. "If the ship only has one life raft, we want to make sure the life industry is on that life raft."

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