National Regulatory Modernization for Insurers

There are currently several proposals to create national regulation for insurance. 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 it would be regulated by a new federal bureau, which would enforce the same insurance-specific laws throughout the country.

The proposals currently under discussion have many similarities to previous proposals for an Optional Federal Charter (OFC), but are not the same thing. They create a national regulator for insurance, but also allow significant powers to remain at the state level and require the creation of state-level offices.

Were a federal regulatory system to become law, it is highly likely that most sizeable insurance companies would create new federally regulated subsidiaries that would have a measure of legal independence but would operate under the same corporate umbrella as their existing operations. Nearly all insurers would maintain some state-regulated operations alongside these new federally chartered bodies,.

A bill currently before the House of Representatives (H.R. 1880) would create a new national mechanism to oversee property and casualty, life, and commercial insurance. Medical insurance would not be included. Treasury Secretary Timothy Geithner has also proposed a degree of national oversight for insurers and a companion bill to H.R. 1880 is expected to appear in the Senate soon.

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. In other words, a degree of government oversight would remain. The proposed House and Senate bills contain no mechanisms to let government set rates. However, about 45 states do have such laws and much of the controversy over these bills stems from the fact that the proposals would create new federal laws.