Insurance Regulation Pending

(For a look at the premimums placed on insurance costs, click here.)

(For a look at the largest insurance companies and hospitals, click here. Note: Hospitals is on page 3 of the PDF.)

Currently one of the biggest concerns in the insurance industry is sitting in both houses of Congress in the form of the National Insurance Act.

This would create an optional federal chartering system for the insurance industry, which is currently regulated by the individual states.

Lynn Zeno, executive vice president of the Independent Insurance Agents of Arkansas, said this pending legislation would be the biggest newsmaker currently in the insurance industry. It’s a change the independent agents oppose.

“One of our biggest concerns nationwide is the effort to pass the optional federal charter, which will essentially create a national insurance department,” Zeno said. “If you like FEMA, you’ll love this new department.”

Proponents say an optional federal chartering system for insurers, similar to the dual system of state and national bank regulation, would reduce costs for consumers and enhance the competitiveness of the insurance industry, as well as reduce regulatory costs and inefficiencies and spur innovation in product design.

Zeno says the major push is coming from big insurance companies and trade associations, which currently have to be licensed in each state in which they do business, file individual rates in each state and get approved by state insurance departments.

He says the big companies believe having a centralized regulatory agency will help them “speed to market” with their new products.

Zeno said it also creates more red tape for consumers.

“Our concern is the insurance consumer. If they have a problem, they call the Arkansas Insurance Department and they can get help locally,” he said.

“If you have a national department you can’t call and talk directly with anyone. Anyone who’s dealt with federal bureaucracy knows the amount of red tape that would create for your average consumer.”

Zeno said the legislation could also take money away from the state.

“Right now the premium tax insurance companies pay is the second- or third-highest tax revenue stream in the state, and if you have a national office they will want to be funded by premium taxes,” he said.

“It will require more money from insurance companies or take money away from the state Insurance Department and create problems all down the line.”

According to Alice Jones, communications director at the AID, the department collected $143 million in premium taxes in 2006.

That money got passed on to the general revenue fund ($89 million), the police and fire departments’ pension funds ($46 million) and to fire protection ($8 million).

The legislation, co-authored by Sen. Tim Johnson, D-S.D. and John Sununu, R-N.H., “isn’t supposed to have any financial impact on states,” Jones said.

Nonetheless, the AID sees no need for changes.

“We think the states are doing a good job the way things are right now, with the states regulating the industry,” she said.

Julie Benafield Bowman, commissioner of the AID, had other uncertainties about the legislation.

“My concern is that a federal charter takes away all the consumer protection that state regulation provides so well,” Bowman said.