Congress is considering developing a new federal system for regulating insurance companies, and the idea is getting a thumbs up by some large insurance companies
that do business in multiple states. It’s getting a thumbs down from others who think insurance companies can be adequately regulated through the state programs
currently in place.
“Congress is going to be reviewing legislation to create a dual system of regulation or have the federal government to come in and completely take over the regulation
of insurance,” said Ron Hanna, deputy commissioner, Mississippi Department of Insurance. “What I have heard so far is that with the dual system – all insurance
agents and companies would go through a licensing process under special guidelines set up by the federal government. The state would be involved with financial
oversight, making sure that insurance companies are financially sound and that consumer complaints are addressed.”
Hanna said someone would have to pay for federal regulation of insurance, and that would likely be policy holders who would see increased premium rates as a result.
He believes that the current system of state regulation would be more cost effective and avoid the inevitable problems that would be associated with the startup of a
major new federal regulatory agency.
The issue of federal regulation of insurance companies and banks or other businesses that sell insurance might not be brought up in Congress if current efforts to
standardize state insurance regulations are successful. Congress passed the Gramm Leach Bliley (GLB) bill that is an initiative to develop uniform treatment of
insurance companies and agents.
“The whole purpose of the Gramm Leach Bliley bill has to do with uniformity,” Hanna said. “There are a number of initiatives that the National Association of
Insurance Commissioners (NAIC) are developing so that states will develop uniform treatment of insurance companies and agents. The current antiquated system of
regulating insurance has created problems to the point that the industry and now financial institutions are pretty much demanding a faster system for company licensing,
product approval, agent licensing and other regulatory areas.”
There are nine initiatives of the NAIC that are being finalized to address GLB. The NAIC met in Dallas last week with a priority being working on compliance with
GLB. The initiatives deal primarily with speed to market and national treatment of companies. Progress must be reported to a U.S. House and Senate subcommittee in
October. If Congress isn’t satisfied with the progress, it could consider legislation to create a national department of insurance.
Hanna said large insurance companies like Prudential and Metropolitan Life are the most receptive to federal oversight because they do business in all 50 states. These
companies have to compete with markets in Europe and Asia, so streamlining regulations is important to their competitiveness.
Regional insurance companies like Southern Farm Bureau Life, which operates in 11 states, are less receptive to the idea, Hanna said. Federal regulation also would
be of little benefit to small insurance companies who do business only in Mississippi. But even relatively small companies might be owned by larger multinational parent
companies. For example, the parent company of Mississippi Diversified is American Banker, which is owned by the Belgium conglomerate Fortis.
“That is a prime example of how international insurance structures impact Mississippi,” Hanna said.
Efforts to provide uniformity in regulating insurance companies are currently a high priority for state insurance agencies. State insurance agencies oppose new federal
“We are definitely opposed to federal regulation,” Hanna said. “We feel like state regulation works. The need to expedite uniformity and make changes that need to be
done to respond to concerns will be addressed.”
Hanna said it would probably take quite a while for the federal government to start a major new regulatory program. And he has heard that a lot of people in the
Washington bureaucracy don’t want regulation of insurance because of the complexity of regulations, the number of employees that would be needed and the cost that
would be involved.
“You are talking about starting from scratch almost, and it would be very chaotic in first couple years if this was done,” he said. “There have been examples of
problems in the past when the federal government has taken authority away from the states. Federal oversight is not always affective.”
Another issue being considered under GLB is how banks are going to protect the confidentiality of banking information. Hanna said that banking information can be a
very valuable asset to a range of different companies, and guidelines are now being developed about how banks can use that information, including selling it to
Generally banks, which are comfortable with federal regulation and not accustomed to dealing with the state insurance regulatory systems, are mostly in favor of
pushing toward federal regulations. “They want a one-stop center rather than having to go to each of the 50 states,” Hanna said.
Because the banks are now involved in selling insurance and insurance companies are selling banking investment products, some states have combined the insurance,
banking and securities divisions under one umbrella.
“That is one of the issues that we are testing the waters to see whether there is any receptiveness on the part of the Mississippi Legislature to consider that in the
future,” Hanna said. “We are not saying we will have such a bill introduced. But that is the trend, to put all three under one agency so there is consistency in policies,
procedures and regulations.”
Contact MBJ staff writer Becky Gillette at firstname.lastname@example.org or (228) 872-3457.