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One of the greatest challenges facing America’s insurers is the irrationally divided nature of regulation for what should be a nationwide industry. The National Insurance Act (H.R. 3200 and S. 40) seeks to address this problem by creating a new federal insurance regulator, setting up a system known as an Optional Federal Charter (OFC), which would let insurers choose to organize under either federal or state law. (The Treasury Department’s Blueprint for a Modernized Financial Regulatory Structure endorses creating an OFC.)
Currently, insurers operating in a given state must operate only 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 regulator, 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.
An OFC may not be an optimal situation, but the addition of an optional federal regulator to the nation’s regulatory firmament would create a degree of regulatory competition between federal and state regulators and thereby improve overall market freedom.
The proposal before Congress would set up new national mechanisms to protect consumers against insurance fraud and to ensure federally chartered insurers’ solvency, which would work similarly to existing state-level bodies. Neither the House nor the Senate version of the bill contains any mechanism to let the federal government set rates. However, about 45 states do have such laws (of the other five, four require insurers to file rates with state authorities) and insurance commissioners, self-styled consumer advocates, and others have raised questions about whether an OFC would eliminate these price controls. (The statistics above, the most recent available, reflect the situation almost three years ago, thus the “about.”)