Dear Mr. Racicot:
I read with interest your letter and news release calling for state insurance regulators to reconsider their opposition to an optional federal charter (OFC). Some of your comments raise questions that should be discussed and clarified.
As President of the American Insurance Association (AIA), one of the largest property/casualty trade groups, you know firsthand how important insurance-related issues are to our nation’s consumers. Property/casualty insurance is a local product, with local issues that require a responsive, local regulator to help resolve consumers’ complaints and address their concerns.
There are presently more than 11,000 individuals working in state insurance departments across this country who help to protect insurance consumers. It takes quite an imagination to assume the Treasury Department could assume even a partial role in regulating insurance without creating a huge bureaucracy. The plain and simple truth is optional federal chartering would create a new federal bureaucracy from scratch and allow insurance companies to “opt out” of comprehensive consumer protections and state oversight. Current proposals would gut consumer protection, while outsourcing most critical regulatory functions to an industry-run self-regulatory organization.
In addition, allowing insurers to pick their regulator threatens a regulatory “race-to-the-bottom.” This scheme would be especially dangerous in property/casualty insurance, where families and businesses faced with a storm, fire, illness or injury often rely on a hands-on regulator to make insurers keep their promises and to help rebuild quickly after an unforeseen disaster. The push for an OFC is, in reality, nothing more than a call for little or no regulation.
And, as a former governor, I’m sure you understand how important premium tax dollars are to the livelihood of every state in our union. In 2006, the states collected more than $16.7 billion in revenues from insurance sources. Of this amount, $1.2 billion — roughly 7.2 percent — went to regulate the business of insurance, while the remaining $15.5 billion went to the states’ general funds for other purposes. This begs the question: How would any new federal bureaucracy be funded, if not by state premium tax dollars? Surely you are not proposing that the AIA’s member companies would be willing to pay an assessment to the federal government, in addition to the premium tax they would continue to pay to their domiciliary state. That would undoubtedly result in higher premiums for American consumers.
I would also like to clarify and correct some of your observations:
* While the current draft of the National Insurance Act preserves premium tax revenues for the states, we do not have to look very far back in history to find a national solution that funded premium taxes for a while and then reversed course. I refer you to the Federal Crop Insurance Program. Historically, the FCIC reimbursed crop insurers for the premium taxes that they were required to pay to the states. Then, in the early 1990s, in a case involving my home state of Kansas, the FCIC sued then-Commissioner Ron Todd for charging insurers a tax that they maintained was preempted by federal law. This led to a multi-state agreement where the FCIC agreed not to pursue the reimbursement of past premium tax revenues in exchange for an agreement that all states would not collect them in the future. This also led to a clarifying law enacted by Congress to make it com