Senate Weighs Plans for Overhauling Morass of State Insurance Regulation

Senate Weighs Plans for Overhauling Morass of State Insurance Regulation

CEI Answers Questions about Optional Federal Chartering
October 02, 2007

Contact:  <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Christine Hall, 202.331.2258

Washington, D.C., Oct. 2, 2007— The Senate banking committee this week will examine the possibilities for reform of the nation’s insurance system.  A new report from the Competitive Enterprise Institute examines one proposal for significant change: an optional federal charter (OFC). <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

An OFC would let insurance companies do what banks have done since the Civil War and subject themselves to federal rather than state regulation. Currently, insurance companies wishing to market a product nationally must go through separate regulatory processes in all 50 states and the District of Columbia.  This system has brought insurance innovation to a standstill, explains the report.

“Since insurers introduced modern homeowners’ insurance in 1959, the industry has not introduced a single entirely new property and casualty insurance product for individual customers,” writes CEI Senior Fellow Eli Lehrer in Optional Federal Charter for Insurers: FAQ.

“Quite simply, there is no current “system” to criticize but, rather, 50 separate state systems plus a separate system for the District of Columbia,” writes Lehrer.  “Some states do have insurance regulation systems that seem to do a decent job at serving customers and insurers alike. But others do not.”

The report provides a free market perspective on the idea of optional federal insurance chartering, with a focus on two similar National Insurance Act bills now before the House (H.R. 3200) and Senate (S. 40).  The bills seek to create a new national insurance regulator, setting up a system known as an Optional Federal Charter (OFC).

“An OFC can’t do everything,” says Lehrer. “But, if it’s structured properly, it could be a step in the right direction.”

Read the report: Optional Federal Charter for Insurers: FAQ

Eli Lehrer Bio

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