Shadow Insurance Regulation Committee Statement on Regulatory Restructuring

Washington, DC, May 5, 2000 – The Shadow Insurance Regulation Committee concludes that the two main objectives of any restructuring of insurance regulation should be to reduce or eliminate regulation of activities that do not need to be regulated and to enhance the efficiency of regulation of other insurance activities. The Committee believes that the time is ripe for a full discussion of regulatory restructuring alternatives for the insurance industry and insurance products.

The Shadow Committee’s latest statement of consensus examines a number of alternatives, such as (1) national charters issued by individual states, (2) federal preemption of certain forms of state regulation, (3) providing insurers a choice between federal and state regulation, and (4) compulsory federal regulation of some insurance activities.

The Committee observes that the major source of pressure for regulatory restructuring is the desire for freedom from state rate regulation and over-regulation of policy forms. However, “achieving beneficial deregulation does not require creating a federal regulator,” according to the Shadow Committee. Promising alternatives to direct federal regulation include state-based national charters, direct federal preemption of state rate regulation and policy form regulation for commercial insurance buyers, and removal of existing state restrictions on insurers’ ability to exit any line of business within a state.

More centralized regulation offers both possible efficiency gains and inevitable risks. Although the Shadow Committee emphasizes that competition among regulators is desirable, it remains unclear “how a formal system of dual state/federal regulation might be designed to preserve and/or promote regulatory competition.” It notes that the possibility of federal intervention represents another important dimension of regulatory competition under the current system.

The members of the Shadow Insurance Regulation Committee include its chairman, James Garven of Louisiana State University, Neil Doherty of the Wharton School of the University of Pennsylvania, Martin Grace of Georgia State University, Scott Harrington of the University of South Carolina, and Robert Klein of Georgia State University. CEI, a non-profit, non-partisan public policy group founded in 1984, is dedicated to the principles of free enterprise and limited government. CEI sponsors Shadow Committee activities, but the recommendations of the group are its own. For more information, please contact Emily McGee, director of media relations, at 202-331-1010, ext. 209.