| Life insurance has always been regulated at the state | | | | excessive costs currently for compliance of state |
| level in United States. When you bought your term | | | | laws. The unnecessary expense of filing each new |
| life insurance policy, it was regulated by the state | | | | product and policy forms in 50 states causes undue |
| you purchased the policy in. Now there is increasing | | | | delays in bringing new products, innovation and |
| momentum to add a federal regulatory body to | | | | consistency of coverage to the marketplace. Filing |
| manage the insurance industry. | | | | products, policy forms and licensing are examples of |
| Why now? | | | | the inefficiency of the current system. Life insurance |
| Although the federal-versus-state regulation debate | | | | companies also can compete with other financial |
| has been waged for decades, in March 2008, the | | | | services companies with more modern and uniform |
| Treasury announced a proposal to offer insurance | | | | regulation. |
| companies an Optional Federal Charter (OFC), similar | | | | Opponents of a federal regulation say that it would |
| to the banking industry and proposed the creation of | | | | create a massive and unnecessary new bureaucracy. |
| a federal Office of National Insurance. Insurance | | | | In fact, the states regulations would remain over |
| companies, agents, brokers and reinsurers will be able | | | | some areas like consumer protection and solvency |
| to choose between state regulation and a federal | | | | funds. |
| regulatory system. Originally, the Treasury described | | | | For insurance agents and brokers (producers) that |
| state regulation as overly cumbersome, making it | | | | work in more than one state or nationwide, having |
| more costly for insurance companies to develop | | | | the option of one license for life insurance can greatly |
| national products and created complication for U.S. | | | | reduce expense and time needed to manage the |
| insurance companies operating abroad and for foreign | | | | sales process. Having to manage many different |
| insurance companies in the U.S. | | | | state forms, insurance rates and processes also |
| Since March, the financial world has collapsed. The | | | | create a level of complexity and unnecessary |
| AIG meltdown and the subsequent federal rescue | | | | expense. Federalization may also relieve producers |
| package have turned up the heat for federal | | | | from navigating the nuanced differences in regulations |
| oversight. With the passage of the Troubled Asset | | | | from state to state. On the negative side, some |
| Relief Program (TARP), the Treasury has $700 billion | | | | worry that another layer of oppressive regulation will |
| dollars at its disposal to attempt to stabilize the | | | | be added to what is already a highly regulated |
| financial market. Eying access to this money, several | | | | industry. |
| insurance companies (The Hartford, Genworth, Lincoln | | | | For consumers, federal regulation may mean faster |
| National and Aegon) proposed or are in the process | | | | delivery of products that the market demands. More |
| of buying banks to qualify for relief under the plan. | | | | nimble insurers will be able to respond faster to |
| There are several reasons why insurance companies | | | | consumer needs. Consumers living in state border |
| find themselves in financial hardship: exposure to | | | | areas will not have to concern themselves with |
| losses from credit default swaps; exposure to the | | | | where the policy was bought and which state has |
| Lehman bonds (since bankrupted); the general | | | | regulatory authority. If a consumer moves to another |
| downturn in the economy; a 40% collapse of the | | | | state, currently their policy is still regulated in the |
| stock market; a frozen credit market and, in the | | | | state the purchased their policy. Some states also |
| case of Genworth, loses from their mortgage | | | | have quirky regulations and laws that make it difficult |
| insurance unit. | | | | for certain products to be made available or to |
| In addition, President-Elect Barak Obama campaigned | | | | replace a policy without burdensome paperwork and |
| on modernizing regulation and providing more | | | | weeks of delays. |
| oversight for the financial services industry. The | | | | Outlook |
| insurance industry will be swept by the wave of this | | | | The regulation system needs to be modernized. |
| financial regulatory transformation. Momentum is | | | | Other countries already have federal regulation. The |
| undeniably in the direction of a federal regulatory | | | | proposed Treasury hybrid system may be just the |
| regime taking hold next year. | | | | beginning of a tilt toward more federalization down |
| What are the Outcome for Insurance Companies, | | | | the road. In the current environment, the feds may |
| Insurance Producers and the Consumer? | | | | not have broken it, but they will buy it and hence |
| The advantage for insurance companies is that the | | | | regulate it. |
| regulation may simplify a complex system. There are | | | | |