This paper provides a free market perspective on the idea of optional federal insurance chartering. Two very similar National Insurance Act bills now before the House (H.R. 3200) and Senate (S. 40) would create a new national insurance regulator, setting up a system known as an Optional Federal Charter (OFC). (This paper does not endorse or oppose any specific bill.)
An OFC would let insurers organize themselves under either federal or state law. Currently, insurers operating in a given state must operate under that state’s insurance laws. A federally chartered insurance company would have to obey all general state business regulations, but would work under a new federal bureau, which would enforce the same insurance-specific laws throughout the country. Federally chartered insurance companies would sell homeowners’, life, and auto insurance, but not health insurance.
The proposals before Congress would set up new national mechanisms to protect consumers against insurance fraud and to ensure federally chartered insurers’ solvency. These systems would work similarly to existing state-level bodies. The proposed House and Senate bills contain no mechanisms to let government set rates. However, 49 do have such laws and much of the controversy over these bills stems from the fact that OFC would eliminate these price controls.