April 01, 2008
Included in the Treasury Department’s financial regulatory reform package is a interesting proposal: An optional federal charter (OFC) for insurance companies.
What’s the big deal? State regulators have traditionally had oversight duties dealing with insurance companies, while the Fed has been in charge of the insurance programs no one wants to oversee: Too costly? (National Flood Insurance) Too burdensome? (HIPAA & COBRA); let the Feds deal with it.
But bread and butter insurance? That’s the state government’s purgative. The states oversee insurance companies, regulate their ability to do business inside the states, deal with complaints and for their troubles, they collect fees and premium tax from the insurance companies; all this transparent to the happy insured.
So why the big deal if insurers are federally chartered?
The good side:
- Insurers could do business in multiple states easily, increasing competition; more competition is better for the insured.
- Congress could control and conceivably dictate policy language and provisions to companies, maybe even (dare we hope) develop a blueprint for a national health insurance policy with published premiums and reimbursement schedules.
The bad side:
- The Fed has no insurance oversight experience; no current agency audits or examines insurers and has no complaint handling apparatus. Does Paulson propose we allow federally chartered insurers to examine themselves? Yikes.
- Who would enforce federal insurance law and contract provisions? The FBI? The federal courts? Could we expand ATF to include insurance? (ATFI??). Like the FBI doesn’t have enough to do. When is the last time someone got arrested for interstate identity fraud?
- Who will get the state governments to sign off on this? Will the premium tax they normally receive be replaced by something else? Will insures have to pay both the states and the fed?
My feeling is of OFC gets passed, it will be restricted to only health insurance. If I was a gambling man (and I’m not) I’d lay some money on this proposal getting the boot and dying with the rest of Paulson’s proposals.
I came across your blog on Technorati. Nice site layout. I will stop by and read more soon.
Mike Harmon
Thanks Mike, I’ll do the same with your blog