Federal Chartering of Insurance Companies: Options and Alternatives for Transforming Insurance Regulation

Abstract:     
This paper provides an overview of the rationale and options for federal intervention in insurance regulation. Despite a number of positive and incremental reforms throughout the past decade, several key aspects of state insurance regulation, including regulation of rates, rate classification, and policy forms, remain substantially dysfunctional in many states - with no end in sight and with significant burdens on interstate commerce. A transformation of insurance regulation to reduce those burdens by promoting healthy price and product competition and eliminating regulatory micromanagement of price and product decisions will not be achieved without federal intervention. A well-designed system of optional federal chartering and regulation represents one means for attempting to achieve such a transformation. Two alternatives for transforming insurance regulation without creating a federal regulator and perhaps with less risk than optional federal chartering include: (1) enact minimum federal standards for state insurance regulation that would preempt non-conforming state regulation, and (2) allow life, health, and property/casualty insurers to designate a "primary state," and to operate nationwide subject primarily to the regulations of that state.

Keywords: Insurance regulation, optional federal chartering

Accepted Paper Series