FOR ONE WEEK in October, holding a debate in Virginia proved to be quite popular. In Williamsburg, Arkansas Governor Bill Clinton was preparing for a presidential debate to be held just days later in nearby Richmond. But also in Williamsburg, a smaller, less publicized discussion on state vs. federal regulation of the insurance industry - a topic whose final outcome has perhaps as much importance to the insurance buying community as does the outcome of the national presidential election - was in full swing.
The debate took place on the final day of the RIMS Virginia Chapter's 1992 Educational Conference. RIMS Past President Robert Esenberg, risk manager for the City of Virginia Beach, acting as moderator, stressed that what RIMS had endorsed at its annual conference this past March was the concept - not any particular proposal - of federal solvency regulation of large commercial insurers writing policies for large commercial policyholders. He conceded, as RIMS Director of Government and Public Affairs and General Counsel Paul Brown later would, that "we still do not like the proposals that are on the table; there are problems with them; but there are some parts that we do like."
Questioning the wisdom of having a federal regulatory system, Steven Foster, insurance commissioner for the commonwealth of Virginia, stated "I don't know why RIMS thinks that if you put regulation in the hands of federal employees who are subject to 535 elected officials, that the results would be better. There's plenty of evidence of the influence of senators and congressmen who have stopped regulators from taking action." He related how federal authorities had preempted the Virginia state banking commissioner's authority to shut down two undercapitalized state-chartered savings and loan banks by granting them federal charters. The banks eventually folded, amassing tens of millions of dollars more in liabilities than they had prior to federal intervention.
Making the states' case, Commissioner Foster reported that the National Association of Insurance Commissioners (NAIC) had embarked on an accreditation program that would derive its power from those state insurance departments not honoring non-accredited state examinations of its domestic insurer's ability to write on an interstate basis. Responding to a charge levelled by Mr. Brown that a state's non-accreditation status could hurt consumers in that state by driving out its insurers to accredited states, Commissioner Foster asserted that the non-accredited state would probably be willing to license a redomesticated insurer as a foreign insurer.
Commissioner Foster readily admits that there are certain areas, such as the regulation of alien direct writers and reinsurers, that still need to be addressed: "This isn't a perfect system. There are still receiverships; there are still cases of states waiting too long. And even in a near-perfect system, given the competitive nature of the marketplace, there will still be receiverships. So our goal is to minimize those; our goal is to get better control of it." One method both RIMS and the NAIC favor would be the federal government's enacting anti-fraud legislation.
Firing another salvo at federal regulation, Commissioner Foster specifically believes that there is nothing in H.R.4900 - the Dingell Bill - for consumers, "only for large insurer and broker special interests, to have one license to operate in 50 states and be self-regulated." But Mr. Brown disagrees, having found that complex multistate-multinational transactions "have become sophisticated to the point where state regulators do not have a good handle on regulating those transactions." On the other hand, both agree that a dual system will not work, but unlike the NAIC, RIMS contemplates two separate systems regulating different areas of the industry as opposed to splitting the rate and solvency responsibilities. Mr. Brown …