We Have Options
The AIG debacle could change the way
Congress views the Optional Federal Charter.
In 1993, I joined The Council as its federal lobbyist (the
organization was then called the National Association of
Casualty and Surety Agents), and within a month our board
embraced the most radical public policy reform ever proposed
for the insurance industry by endorsing Rep. John
Dingell’s, D-Mich., novel “Optional Federal
Charter” idea. Among insurance trade associations, we
were pretty lonely; only the American Insurance Association
(representing large insurers) and the then-National Association
of Insurance Brokers (which later merged with The Council)
supported the controversial Dingell plan.
In the 15 ensuing years, I have chronicled the rituals of
the industry’s circular firing squad on the Optional
Federal Charter (OFC). The very presence of the pitched debate
has altered state behavior, but the fact remains that the
legislation hasn’t even come close to passing. I’ve
always said that some game-changing crisis will have to occur
for the OFC to get serious consideration.
The breathtaking, stunning, infamous, $85 billion federal
takeover of AIG presents the requisite rationale to the
incoming Congress and administration.
Much has already been written on the catalytic effect of the
AIG meltdown on the regulatory debate. Recriminations and
finger-pointing began the day after the federal deal was
announced— does AIG’s failure underscore the
solvency and effective regulation of the insurance
subsidiaries, or does it prove the case for federal
intervention? In the previous 15 years, Congress had assumed
the Heisman-Trophy posture on the OFC; next year they’ll
be tackling it.
Like everything in the public policy arena, where you stand
depends on where you sit. While there are long lists of
who’s against and who’s for the OFC, the realities
(of what people are willing to live with) are more nuanced. In
anticipation of the congressional examination of this issue,
and just to torture the football analogy one more time, here is
the starting lineup of industry players on the issue.
- Unlike the property-casualty industry, life insurers and
agents are more cohesively supportive of the OFC.
They’re competing with securities firms that go to a
single regulator for product approvals, and the 50-state
insurance system makes them inherently less competitive. The
p-c community has the same complaint but is fractured and has
to battle the notion that p-c is inherently local and
regional, whereas life products are not. Prior to the AIG
fiasco, a consensus existed on Capitol Hill for a life-only
charter. If that’s the way the pendulum continues to
swing, I wouldn’t be surprised if the life crowd took
what they could get, rather than going down in flames because
they’re joined at the p-c hip.
- Personal lines companies like Allstate and USAA, which
want a federal charter, feel (for good political reasons)
that the OFC coalition must stick together no matter what.
Substantively, perhaps the most compelling argument in favor
of a federal option is the USAA pitch: military personnel who
move from state to state in service of their country but who
don’t have portable insurance. Politically, though,
this is the most difficult sell. House Financial Services
Committee Chairman Barney Frank, D-Mass., seems emphatic that
he doesn’t want Congress to be fielding consumer
complaints. Auto insurance alone, he says, “is rich
versus poor, black versus white, urban versus
suburban.” Frank isn’t likely to be rolled on the
issue (and hasn’t been rolled on any issue in the
House, for that matter).
- AFLAC and the Independent Insurance Agents & Brokers
of America are leading opponents of the OFC. However, IIABA
supports “targeted reforms,” such as surplus
lines legislation, plus the “NARAB II” proposal
that would afford producers an opportunity to get a national
passport for interstate licensure in the absence of a
50-state uniform standard. They go to lengths to contrast
“national” licensure from “federal”
licensure, but that seems splitting hairs to me.
- Proponents of an OFC also support incremental measures.
That’s essentially where The Council has been. When the
OFC was gasping for oxygen, we aggressively supported the
now-extinct “SMART Act” package of targeted
federal reforms being advanced by then-Chairman Mike Oxley,
R-Ohio, of the Financial Services Committee. The surplus
lines legislation and NARAB II are spinoffs of that effort
that still have a chance of passage. True, we exasperated
some of our colleagues who felt that
“incremental” change necessarily comes at the
expense of comprehensive. In the aftermath of AIG, that
argument may be academic. Congress’s interest will go
well beyond parochial issues that nip at the edges of
insurance oversight. (The notable exception to this, however,
is the surplus lines legislation, which has gathered the
closest thing to consensus among stakeholders in the entire
OFC critics argue that a congressional inquisition could
lead to California-style overlay of federal oversight on top of
state regulation. Indeed, it is a hazard. I’ve often
pointed to the reality that it’s always harder to pass
something than to defeat something. Before AIG, the OFC was a
stretch. There are no guarantees, but if a congressional
response starts to go the way of an intrusive new regime that
provides no relief from the protectionist barriers of
state-by-state regulation, my bet is that the industry will at
a minimum be able to modify, if not kill, it.
Wood is The Council’s senior vp of Government Affairs.