Optional Federal Charter: Should We Love it or Leave it?
I have been in the insurance industry for the last 25 years. During that time it seems like there has always been talk about the federal government becoming more involved. A little piece at a time, the feds have chipped away at the industry and continue to do so to this day.
The current discussion centers around an optional federal charter (OFC). Up front I want to state that I am neither for nor against the concept of a national federal charter option for insurers. As a consumer, do I care if an insurer is state regulated or federally regulated? Probably not. I don’t choose a bank based on whether they have a state charter or a federal charter. I choose a bank because they offer the services I want or need at the right price and consider their proximity to my home and/or place of employment. But I do have some questions about the concept. Some of my questions result from many years of experience within the industry, but other questions come from my role as an insurance consumer.
My Questions
Where will the money come from? Wearing both my industry hat and my consumer hat, I am smart enough to know that you can’t establish a new federal bureaucracy with out it costing money. Under current proposals, it appears that some functions would still be handled by the states and some under the federal government, but the states still have the right to assess premium taxes as well as some of the filing fees. The result would be companies under a federal charter paying extra for that charter. Then logically, that would seem to mean insurance premiums would have to increase to cover the additional costs. As a consumer, that doesn’t make me happy at all.
Many supporters of the OFC say it will result in lower insurance premiums. I have to admit I don’t see how, but will recognize that possibility. However, that possibility leaves me with mixed emotions. As a consumer, I would appreciate lower insurance premiums. Then the other side of me kicks in. The theory is under the federal charter there will be little or no regulation of rates and free enterprise will prevail. But at what price? How low will competition demand the prices go? And will companies be able to recognize when prices are trending too low to cover their expenses and stop that trend? Will industry be able to halt lower prices before a myriad of companies become insolvent? I mean, what good are lower premiums if the company isn’t around to provide the services I paid for?
Two differing opinions are being expressed on consumer protections; some say the states do better, others say the Feds will do better. I am a consumer that has had to wrestle with a health insurer or two in my time. Once I had to go so far as to hint (not quite threaten) that I was ready to file a formal complaint with the insurer’s state of domicile, my state insurance department, and my employer’s state insurance department. That did the trick! I know how to file a complaint or ask a question on a state level, should I ever need to.
I can’t help but wonder what that process would be like for an insurer with a federal charter. (Ok, I know the current proposal excludes health companies at the moment, but play along with me here.) You see, I also have a little experience in dealing with the federal government; on two levels. The first example a lot of you can relate to. Have you ever called the IRS with a question? Not a compliant, just a question. How did that work for you? When I remember those experiences and try to relate that to getting action regarding a OFC insurer or just asking an insurance question—well it’s enough to give me nightmares.
In all fairness, I should not base my trepidations on just one branch of the federal government; that would not be fair. However, I can relate to another area of federal involvement—Social Security. I have a disabled daughter who qualifies for social security disability benefits. On her behalf, I deal with Social Security on a very regular basis. My experience there? Not much better than my IRS experience. If I have to contact them, I rarely am able to connect to a live person. It is not unusual to leave 6 – 10 voice mail messages before someone finally returns my calls. I get lots of computer generated correspondence that tells me virtually nothing. And it seems like their “computers” are always making mistakes that have to be corrected. So, excuse me if I am not convinced that the federal government will offer better or even equal consumer protections compared to the states.
As an industry person, I certainly understand insurance producers wanting to be under a federal charter. Under the current proposal, once licensed under a federal charter producers (including agents) could operate in any state in the U.S. Now they have to be licensed in each individual state and although that process has been streamlined over the years, it still is not as efficient as it could be. The OFC would definitely provide greater licensing flexibility and choice. Agent’s internet access would most likely expand. But is that a good thing? Would that expanded internet access mean more junk email for us to deal with? As a consumer, I really don‘t want to be deluged by more email or pop-up adds!
Then I start thinking outside of the box; the insurance box, that is. Doesn’t the federal government bear some responsibility for this subprime mortgage mess? Didn’t lax federal oversight bring this on us? And how many billions of dollars is being added to the national debt to “rescue” part of the mortgage industry? I think I read that the Office of the Comptroller of Currency, the Federal Reserve and the Securities Exchange Commission were all involved on some level or another. That certainly makes me feel better about federal regulation and oversight!
As I reflect on the issues that have come to light in this article, I realize that I should further clarify my stand on the optional federal charter. The professional side of me still is neutral while the consumer side of me has a different opinion.
What are your thoughts? What’s best for the industry? What’s best for consumers? Share your opinions and ideas with me at connie.woodroof@stoneriver.com.
