by Trevor Juntunen

Created on: August 05, 2009

Each state currently has a department to regulate insurance companies that operate in its jurisdiction. The regulations vary depending on which state you are in. As a resident and agent in Michigan, my regulator is: http://www.michigan.gov/dleg/0,1607,7-154-10555-,00. html, the Office of Financial and Insurance Regulation. These state regulators require that an agent be licensed by the state. Insurance companies need to meet and maintain certain financial criteria. They have to conform to the laws of the states in which they operate.

There are some federally mandated and governed insurance lines. These are insurance products that can be so devastating that insurance carriers could be bankrupted trying to cover all the losses from a single event. Flood http://www.fema.gov/hazard/flood/info.shtm and FDIC deposit insurance http://www.fdic.gov programs are examples that are regulated by the Federal government, and in some cases run by them too.

For most insurance programs there is no national regulator. This allows states to tailor rules that better fit their needs without having to be shoehorned into federal regulations. My state, Michigan, is a No-Fault auto insurance state. This system varies radically from the tort system common in most states. With no-fault, you have the option for what physical damage coverage you wish to place on your own car. Medical benefits and out of state liability are automatic for you under the policy.

If you are in an accident, whether your fault or the other drivers, where you or a family member are injured, your policy covers the medical bills. You are not required to hire a lawyer to sue the other driver on your behalf. This is the essence of no-fault insurance: removing the need to sue. This is handled between the insurance companies after your claim is settled. I personally believe the no-fault system to be the superior form of auto insurance, but it does have a drawback. Usually the cost of the no-fault insurance policy is more expensive.

Here is where I do not want to see a national regulator come along and force all states to conform to one system. With the majority of states operating under the tort system, would we in Michigan be required to change back to the tort system? Or would the tort states need to shift their policies to the no-fault model?

With all jurisdictions having an insurance regulator, I cannot see another layer of bureaucracy improving the current system, but instead only making it worse. This will result in overall increases of cost to the consumer, and the likelihood of more types of insurance being mandated.

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