Regulating Insurance Sales or Selling Insurance Regulation?: Against Regulatory Competition in Insurance

Abstract

In both corporate and banking law, firms are empowered to select from a limited menu of options the regulatory regimes that will govern them. Two recent proposals would reform the regulation of property, casualty and life insurance markets by empowering insurers to make similar choices among multiple regulators. This Article argues that such regulatory competition is undesirable. Insurers operating in such a regime would tend to choose the least intrusive regulators, irrespective of whether doing so benefited consumers, third-parties, or even the collective interests of insurers themselves. The resulting decrease in regulatory scrutiny would, in fact, harm insurance markets and impede genuine regulatory modernization. Although targeted safeguards might mitigate these risks, they would hardly eliminate them. Thus, while reform of the present system of state insurance regulation may well be desirable, any such reform should strive to avoid enhancing regulatory competition.

Keywords: Insurance, Financial Regulation, Optional Federal Charter, Regulatory Competition