An interesting idea for insurance choice

In the next few weeks, I’m going to be writing a good deal about the idea that insurance companies should have the ability to do what banks have done since the Civil War and subject themselves to federal rather than state regulation.

For a variety of reasons, the structure of what’s called Optional Federal Chartering will decide whether it’s good or bad. Structured properly it could make a big difference for consumers. Federal chartering could result in less regulation, more choice, and prices that better reflect risk. Structured the wrong way, it might actually make things worse by adding another level of regulation to an industry that already faces too much. A lot of the details about the “right” and “wrong” structures remain unresolved in my mind.

Thus — while the right federal chartering bill could do a lot of good right now — I think there’s a decent case for some sort of federal charter pilot program before allowing full open competition. The best way to pilot something like this would be to limit who federally chartered companies could serve. Limited to a discrete, geographically dispersed group, we could pilot the idea before going full steam ahead.

During a recent trip, an insurance company executive suggested a very good group to pilot such a program: people in the military. Career officers and enlisted personnel can spend decades without having full-time residence in the state that issues their drivers’ license and collects their income tax. Thus, it makes a certain amount of sense to think that they should be able to buy insurance policies that aren’t associated with any particular state.

A federal charter that limits federally chartered companies to serving the military could present a good pilot program, particularly since people in the military may have needs that the current market has a hard time meeting. But, of course, there’s always a danger that it could actually limit the campaign to liberalize insurance markets.

We’ve let big companies buy health insurance policies across state lines for years but efforts to let individuals and small businesses do the same have failed to date in large part because mandates to cover an array of things, from mammograms to podiatry to chiropractic to baldness cures, have the support of specific organized interest groups, while the principle of interstate purchase has smaller individual benefits to a larger group of people.

This isn’t an exact analogy for property and casualty insurance but it’s possible that one could emerge. Still, I’d love to see a debate begin over the idea of a military-only federal charter.