New federal insurance regulator is not the answer
After eight years governing Montana, and two chairing the Republican National Committee, becoming leader of the American Insurance Association must have seemed like something of a haven to Marc Racicot. Then Hurricane Katrina hit, creating massive losses and highlighting the challenges the nation and insurers face when responding to major catastrophes.
Now, Racicot finds himself the point man for an effort to achieve the most sweeping changes in insurance oversight since the inception of the property and casualty industry in the years after the Civil War.
Racicot, who will be in Spokane this week, says an outdated system of regulation hamstrings industry efforts to introduce innovative insurance products, including those covering homes and vehicles. The association is supporting a newly introduced Senate bill that would allow insurers to retain the charters they receive from each state, or get new federal charters that would subject them to oversight by an Office of National Insurance created within the Treasury Department. Companies would be allowed to exchange state charters for national, or vice versa.
Racicot likens the proposed system to that governing banks, which have had the option of state or federal charters for more than a century.
Foes of federal charters have endorsed an alternative approach, the State Modernization and Regulatory Transparency Act, or SMART. The original bill faded in the House of Representatives, but may be changed and revived. It would set federal standards, but leave supervision to the states.
State insurance regulators, who have undertaken their own efforts to simplify industry oversight, want to continue those efforts.
Washington Insurance Commissioner Mike Kreidler says the states are close to a compact that would standardize oversight of life insurers. The proposed legislation in Congress is intended to head off a similar effort in property and casualty oversight, he says.
Racicot says state intrusions into insurance markets, notably those by Florida, are causing serious distortions that could eventually affect taxpayers. Insurers unable to charge premiums that would enable them to cover losses from a major hurricane are leaving Florida, or at least those areas most vulnerable to storm damage. Meanwhile, a state-backed insurance program is almost $2 billion in debt.
The deeper the losses become, Racicot warned, the more politics will impede efforts to restore order.
Ironically, it was in Florida that Racicot rose to national prominence. A friend of George W. Bush since both were governors, he became the Bush campaign’s spokesman during the dispute over the voting in Florida. He reportedly passed on an offer to become U.S. Attorney General, instead joining a private practice in Washington, D.C., then taking over as chairman of the Republican National Committee. He headed the 2004 Bush-Cheney re-election campaign.
He became AIA president in August 2005. The organization represents 430 property and casualty insurers that control about 30 percent of an industry that collected $418 billion in premiums last year, and earned $43 billion.
Racicot will be in Spokane Thursday in part to raise money for the Senate campaign of Mike McGavick, and to deliver the first of a planned Distinguished Speaker Series sponsored by Avista Corp. and The Gallatin Group. McGavick, former chief executive officer of Seattle-based Safeco Insurance Co., is challenging first-term incumbent Democrat Maria Cantwell.
Racicot is absolutely correct about the mess some states and the federal government are making of insurance’s role in disaster recovery, most egregiously in flood insurance, but a new federal insurance regulator is not the answer. Somehow, Republicans have become enchanted with the notion Washington, D.C., has the solutions for problems in education, energy, and any number of other areas.
They’re wrong.