Insurance companies lobby for change in regulations
as posted at www.idahostateman.com
By Julie Hirschfeld
April 29, 2009
WASHINGTON - The proposal is viewed with horror by consumer advocates who say it will weaken protections and raise costs. But the insurance industry, which has been pushing unsuccessfully for the change for years, argues it's more urgent than ever in the wake of the meltdown that brought financial firms, including the insurance giant American International Group Inc., to their knees.
As lawmakers and the Obama administration race to plug holes in financial laws to prevent another catastrophe, key officials including Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke are expressing a new willingness to consider the shift.
But Bill Deal, Idaho's Department of Insurance director, says the plan is a bad idea. It would pull much of the insurance industry's regulation out of state hands and put it into a federal bureaucracy that may be less accessible to people, he said. "If this goes to a national type of regulation, who is going to take care of the needs of our consumers?" he asked.
Industry estimates suggest the rather obscure change in federal law could be worth billions of dollars annually to insurers. And lobbyists see the drive to overhaul financial rules as their best chance in a long time to achieve it.
If the companies get their way, the financial crackdown that President Obama and Congress have promised as a way to prevent another Wall Street crisis will come with a substantial easing up on insurance companies. Known as an "optional federal charter," the system let large insurers, which now can be subject to as many as 51 different sets of rules and overseers in the states where they operate, escape a regulatory maze they say stifles their business and leaves the federal government blind to potential industrywide problems.
But state regulations reflect specific situations in each state, Deal said.
The federal charter would function much like the system now used to regulate banks, allowing insurance companies to decide whether to be chartered and overseen by the federal government or by individual states.
Major insurers, including Allstate, State Farm and Zurich, plus the big financial trade associations argue that the change would create a much-needed federal overseer for a gargantuan sector that currently has no national authority looking over its shoulder.
Consumer advocates argue that such a system would let insurance companies shop around for the weakest rules and lead to the same kinds of abuses and reckless risk-taking that brought other financial services firms to their knees.
Together with their trade groups, the companies have dumped tens of millions of dollars into lobbying for the change in recent months.
They've also given freely to politicians in positions to help them achieve it. Obama is among the top recipients of insurance industry campaign money, taking in $2.2 million in the run-up to the last election, according to the campaign finance watchdog Center for Responsive Politics. Other top recipients include Rep. Melissa Bean, D-Ill., who's pushing legislation to accomplish the switch.
Bean argues her measure will lead to tougher rules and "best-in-class" consumer safeguards for the insurance industry.
"In the wake of the historic failure of our state regulatory system to prevent the collapse of AIG, we drafted this bill to create a national regulator that could better protect consumers and the economy," she told the AP in a statement.
Statesman staff contributed to this report.
