CEI Comments on Proposed National Regulatory Modernization

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Washington, D.C., February 12, 2009—Analysts at the
Competitive Enterprise Institute, a free-market think tank, raised questions
about new proposals to impose national regulation on a broad range of insurance
companies. In legislation slated to be
introduced later this month, House members Ed Royce (R-CA) and Melissa Bean
(D-IL) will propose a national system intended to modernize insurance
regulations around the country.

Under the proposed “National Insurance Consumer Protection
and Regulatory Modernization Act,” the federal government would gain vast new
powers to oversee the solvency and stability of insurers. Small insurers would
remain regulated at the state level but larger insurers judged to pose
potential “systemic risk” would face a
mandate to submit to federal regulation. Nationally regulated insurers would
still have to participate in state residual market mechanisms and pay state
taxes. In addition, the federal government would open insurance oversight
offices in all fifty states. The
legislation would also allow insurers to charge actuarially indicated rates
throughout the country without burdensome, stability enhancing regulation by
state authorities.

“This is not the same thing as the optional federal charter
I’ve long supported. It’s not optional, it’s not really federal, and there’s no
clear charter,” says CEI Senior Fellow Eli Lehrer. “I wish the proposal went further but,
mostly, it still moves things in the right direction.”

Significant
questions still exist about the scope of federal regulation. “While it is
likely that all of the largest financial entities would already choose federal
oversight under any system, the language in this law creates a dangerous
ambiguity,” says CEI policy analyst Michelle Minton. “That ambiguity could
potentially harm regulatory competition by superseding financial institutions’
ability to choose which option they want.”

Minton
also raises questions about the plans to place offices in all fifty states.
“This proposed legislation puts federal offices in 50 states, eliminating some
of the greatest benefits that the Optional Federal Charter theoretically would
have provided, namely, regulatory efficiency and cost savings,” she said.

CEI is a non-profit, non-partisan
public policy group dedicated to the principles of free enterprise and limited
government. For more information about
CEI, please visit our website at www.cei.org.

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CEI Comments on Proposed National Regulatory Modernization