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Professional Insurance Agents Say National Insurance Act Would Make Consumer Protection Optional

WASHINGTON, July 27, 2007 - A bill calling for optional federal charters for insurers would make consumer protection optional, according to the National...
July 27, 2007

WASHINGTON, July 27, 2007  -  A bill calling for optional federal charters for insurers would make consumer protection optional, according to the National Association of Professional Insurance Agents. The National Insurance Act of 2007, introduced this week in the House, would create a massive new federal insurance bureaucracy and then permit insurance companies to opt out of state consumer protection laws.

"This bill is bad for consumers, bad for the insurance business and bad for American taxpayers," said PIA Executive Vice President & CEO Len Brevik. "It is being pushed by special interests that want to establish a duplicative federal insurance regulatory regime for their own benefit and weaken consumer protections in the process."

The bill introduced on Wednesday July 25 by Rep. Ed Royce (R-Calif.) and Rep. Melissa Bean (D-Calif.) is companion legislation to S. 40, introduced by Senators Tim Johnson (D-S.D.) and John Sununu (R-N.H.) on May 24.

"Advocates of an optional federal charter claim that the system of state-based insurance regulation needs to be changed so they can operate more efficiently,"  Brevik said. "But what they actually want is to expand their market share by creating a new federal bureaucracy that puts their competitors at a disadvantage."

PIA said that the federal insurance charter envisioned under this legislation would not truly be optional. It would allow large financial services entities with insurance operations to move in and out of markets - anything from several territories to entire regions of the country - solely at their whim, thereby disrupting markets and diminishing, not enhancing, options for consumers. In addition, the bill would impose the costs of an unnecessary new federal bureaucracy, the Office of National Insurance (ONI) in the Treasury Department, on businesses and individual taxpayers.

PIA believes that consumers are best served by an insurance system that is regulated by state departments of insurance. These state departments are more knowledgeable about the specific concerns of their states and regions. When urgent needs arise, a state regulator is able to respond in a more efficient manner than a federal regulator who may be subject to federal political pressures. This helps ensure that consumers, both individuals and businesses, continue to have access to a robust insurance marketplace to protect them, rather than one that is mired in bureaucratic red tape and leaves them with uninsured exposures.

PIA is pleased to join with the National Conference of Insurance Legislators (NCOIL), the National Governors Association (NGA), the National Conference of State Legislatures (NCSL), the Council of State Governments (CSG), the National Association of Insurance Commissioners (NAIC) and other organizations in strong opposition to The National Insurance Act of 2007.

Proponents of optional federal charters have pointed to their use in banking as evidence that such a system works well. Brevik countered that in fact, the opposite is the case.

"Those who point to the banking industry as an example of optional federal charters working well are suffering from a major case of convenient amnesia," Brevik said. "They're forgetting the savings and loan fiasco."

"Let's look at the real record of optional federal charters," he continued. "In the 1980's, over 1,000 savings and loans failed, and American taxpayers were stuck with a $150 billion bill. Why? Deregulation had allowed banks to opt for either a state or federal charter. State-chartered institutions, not wishing to be outdone, scrambled to be federally-chartered and a competition ensued between the federal government and the states over investment capital.  This led to a prospective dismantling of regulatory standards as a regulatory 'race to the bottom' developed that left consumers without the protections they needed."

Brevik said the financial chaos that ensued as a result of optional federal charters in banking led directly to the most serious financial crisis in our nation's history. "Why would anyone want us to repeat this in the insurance industry?" he asked.

"The argument advanced by supporters of this proposal that the current system of state regulation of insurance is inefficient and outdated is simply not true," Brevik said. "Just look at the financial profile of the insurance industry and you see phenomenal success, not inefficiency. Of course, continuing reforms must be made by states to bring about even greater efficiency. But Congress should not exchange proven success for unintended consequences. For more than 200 years, insurance in the United States has been regulated by the states and the result has been that the success of the insurance industry makes it the envy of the world."

"But now, that 200 year track record of success is under attack by an axis of self-interest: big banks, big securities firms and big life insurance companies," Brevik said.  "Main Street insurance agents do not believe that all roads lead to Washington, D.C. They know consumers are best served by state-based regulation."

Founded in 1931, PIA is a national trade association that represents member insurance agents and their employees who sell and service all kinds of insurance, but specialize in coverage of automobiles, homes and businesses. PIA members are Local Agents Serving Main Street America SM. PIA's web address is

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