Treasury Secretary Henry Paulson’s proposal for a newly created federal insurance regulator, and the “option” of a federal insurance charter for insurance companies, is a back door route to deregulation of the insurance industry.
Strong oversight by state insurance regulators protects consumers at the same time as it keeps insurers solvent and profitable. The entire insurance industry would try to bypass state regulation if presented with a toothless federal regulatory option instead.
A federal charter would allow any insurance company to opt out of state laws for weaker federal oversight, and would drive all insurance regulation to the lowest common denominator, a point highlighted by California’s Insurance Commissioner in a statement today.
Paulson’s plan is a continuation of the single-minded deregulatory thrust of the Bush administration, at a time when serious problems have been exposed with the decreased oversight and corporate self-reporting the administration favors.
The mortgage market spiraled out of control because no one was responsible for overseeing the industry’s practices. But that crisis is just the latest in a series of indications that American regulators were asleep at the wheel. The heads of drug, meat, consumer product and agricultural departments have also failed to protect us. Vioxx was approved by the FDA but caused heart attacks. A meat processor abused sick cows and sent possibly tainted meat to school cafeterias. Lead paint was discovered in a parade of popular, and belatedly recalled, toys. Spinach and lettuce became dangerous instead of healthy when e-coli repeatedly turned up in produce from California farms.
Paulson’s scheme would allow insurers to opt out of consumer protection laws. So-called “uniformity” in insurance regulation is almost certain to result in national standards that are weaker than those in any state. The effect of the plan would be to deregulate the insurance market. Americans need stronger protections against insurance company abuse, not weaker oversight.
Proposition 103, the voter-approved law that created California’s insurance regulatory regime, is the perfect example of the kind of protection consumers stand to lose if Paulson’s plan goes into effect. Prop 103 created an elected insurance commissioner – so the top regulator answers to voters (who are also consumers) instead of the political patron who appointed him. Prop 103 requires driving record to be the primary basis of insurance rates, not things unrelated to driving, like where you live or what you earn. Prop 103 prohibits excessive and unfair rates, and requires insurance companies to open the books and justify costs before raising rates.
Paulson’s plan would allow insurance companies to walk away from regulators in California and every other state.