by David Guzman

Created on: June 09, 2008

Insurance companies do not need more regulation, they need better
regulation.

Insurance regulation today is a crazy quilt of state insurance
departments, industry ratemaking organizations, assigned risk pools,
and quasi-governmental regulatory bodies. State insurance laws vary
significantly, sometimes even contradicting each other so that
compliance with one state's laws violates another's. Variations in

state rate regulation has the effect of forcing insureds in one state
to pay significantly more than identical insureds in a neighboring
state.

A multi-state insurance company typically deals simultaneously with
more than 51 different regulatory authorities and a number of industry
groups with rate-setting authority. This reporting burden is
significant. Each state requires its own set of annual, quarterly and
ad-hoc reports. All multi-state insurance companies therefore must
dedicate staff to regulatory reporting and complying with each state's
unique requirements.

The cost of complying with and supporting this regulatory nightmare is
a part of the premiums we all pay. Insurance company expenses are
higher than necessary because of this excessive reporting. More
premium tax revenue is dedicated to insurance regulation than is
necessary. The lack of communication between jurisdictions makes
insurance fraud easier to commit because criminals in one state can
simply move to another if things get too hot. Innovation is stifled
because of the difficulty of introducing new products. It is
difficult to standardize forms across states, and the process of
getting new forms approved can take months, even years. The quality of
regulation varies significantly from state to state. In some cases
insurers choose states where they will write business because of the
regulatory environment. They even leave a state altogether in some
cases, leaving insureds high and dry.

If insurance laws and regulations were standardized, reporting and
reserving practices could be standardized, oversight would become more
efficient, regulatory and compliance costs would be reduced, and
benefits would be standardized. More effort could be spent on
innovation, attacking fraud and otherwise reducing costs.

What would be my ideal scenario? I believe that insurance companies
must be regulated just as any financial business must be regulated.
The most important regulatory areas relate to insurer solvency,
conduct, coverage availability, benefits, and pricing. Solvency
regulation and law enforcement should be Federal responsibilities
because

• 1
• 2
• Next Page >>