Wednesday, September 5, 2007

The Optional Federal Charter

These days there is a lot of discussion about the potential implementation of an optional Federal insurance charter. It would allow insurance carriers to opt-in to regulation at the Federal level, and free them from the constraints and restrictions of attempting to comply with up to 50 unique state regulations.

For many carriers, this could dramatically simplify operations. No more state-specific requirements for products, pricing, print, and systems. You would have to believe that the cost of doing business nationwide would be a fraction of what it is today, for many carriers, if they properly take advantage of the opportunity.

State insurance commissioners, predictably, are strongly opposed. They argue that they provide a valuable service to their constituents by protecting them from manipulation and predation by potentially unscrupulous insurers.

From the systems perspective, I think that state-specific regulations are a huge barrier to bringing a new enterprise system to market. You are forced to build enormous flexibility into a world-class system, so that you can try to bring some sanity to the world of 50-state compliance. If you fast-forward to the day when most carriers are chartered at the Federal level, all of that development can be eliminated, and the developers can focus on insurance product features, where the focus belongs.

So, the key question is this; do the state commissioners provide a valuable service, or simply introduce a level of bureaucracy that results in higher premiums for everyone? My gut tells me that it's possible that state regulation has outlived its usefulness, and the writing may be on the wall.