Treasury Secretary Should Not Let Insurance Deregulation Proposal Infect Financial Reform Plan, Say Advocates
Consumer Group Calls Congress Members' Appeal A Stalking Horse for Federal Deregulation of Insurance
Washington, D.C. -- Consumer advocates warned Treasury Secretary Timothy Geithner not to allow necessary reform of the financial markets become a launching pad for insurance industry efforts to federally deregulate insurance, in a letter sent today. The nonpartisan, nonprofit Consumer Watchdog sent the letter in response to a recent letter to Secretary Geithner from some members of Congress calling for the creation of an insurance office within Treasury, which the Members have often presented as a first step toward their chief goal: federal preemption of state insurance regulation.
“While the need for a financial regulatory overhaul is clear, it should be not used as a stalking horse for insurance deregulation," Consumer Watchdog wrote.
Representatives Bean (D-IL), Royce (R-CA), and their colleagues who wrote Secretary Geithner "are not seeking greater federal regulation. To the contrary, their purpose is to allow insurers to escape meaningful oversight altogether. Proponents have made no secret of the fact that they consider an insurance office at Treasury to be a vehicle for limiting the role of the states in the insurance marketplace," the group wrote.
Consumers will pay the price the price if state insurance regulation is preempted, said Consumer Watchdog. In California, a ballot initiative approved by voters in 1988, Proposition 103, has protected consumers from insurance company rate gouging, illegal surcharges and other abusive practices. This law has long been a primary target for insurance companies and their Congressional allies who want Secretary Geithner to begin the process of federal preemption.
An April 2008 state-by-state study of auto insurance regulation, by the Consumer Federation of America, found that California’s law limiting the rates insurers can charge has saved motorists $62 billion since Proposition 103’s passage. The Federation named California both one of the most competitive and one of the most profitable markets in the country, with the slowest-growing automobile insurance premiums in the nation. All these gains could be lost for consumers if insurers are able to opt out of strong state regulation for a lower federal standard, or if federal standards preempt state oversight entirely.
Consumer Watchdog pointed to prior comments and legislative efforts by Representatives Bean and Royce, who actively support an “optional federal charter” in which insurance companies could choose to opt-out of state regulation and select instead a federal overseer in the form of their proposed Treasury official.
“Insurance regulation should not be made a matter of choice for companies. Allowing insurers to select which standards apply to them will result in the negation of hard-won consumer rights laws and destroy the state-based oversight that set insurance products and companies apart from much of the financial sector during this period of extraordinary upheaval,” continues the letter from Consumer Watchdog.
The group concludes: “These are tough times for Americans who work hard and play by the rules. The federal government’s economic and regulatory policies … have crippled our economy and jeopardized our financial security. In this context, it is bewildering to contemplate unleashing a deregulated insurance industry on beleaguered consumers.”
Download Consumer Watchdog's letter.
Download the Representatives' letter.
Download the Consumer Federation of America report.
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Consumer Watchdog, formerly the Foundation for Taxpayer and Consumer Rights, can be found on the web at: www.ConsumerWatchdog.org
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