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The state of U.S. insurance regulation is almost certainly not a topic for most families this holiday season. Yet there is much to be thankful for as well as areas where we can do better.

First, let’s be thankful for those amazing civil servants and legislators past and present who humbly and skillfully protect consumers while fostering competitive markets. National Association of Å˽ðÁ«´«Ã½Ó³»­ Commissioners (NAIC) officers summarize their work in a November 4 op-ed for Å˽ðÁ«´«Ã½Ó³»­ Journal magazine. In that article, the NAIC leaders write:

“The effectiveness of the U.S. state-based insurance regulatory framework in safeguarding consumers and ensuring market solvency is rooted in states’ ability both to act collectively when needed on national issues and to adapt and innovate to unique local circumstances and market conditions. America’s 56 insurance commissioners and their teams are working to ensure that climate-related risks are appropriately addressed and also to strengthen the insurance market and the economy at large. Nearly 11,000 insurance regulators are supporting efforts to both expand coverage and lower risk, making coverage more attainable for consumers and markets more stable.”

The article goes on to describe state insurance regulators’ efforts to educate consumers and encourage disaster preparedness, ensure fair rates, a competitive market, prompt claims handling and insurer solvency, and innovate with new catastrophe models.

Our state-based insurance regulatory system creates interstate competition for both regulators and industry while also fostering national standards and regular collaboration. For centuries our system has effectively overseen the industry that supports our nation’s economy which remains the world’s envy.

Yet this system faces the same challenges as the insurance industry more broadly (and the overall economy). Since wish lists are top of mind in December, below is a wish list of improvements that would further modernize our regulatory system.

• Hire more regulators at all experience levels and build the newest and next generations, with a particular focus on solvency regulation, new insurance companies and capital structures, personal lines, and new technologies (e.g., artificial intelligence, so-called “Big Data”, automation, etc.). Tap university insurance and risk management, actuarial and accounting programs as well as students with more general studies. Hire from the private sector and include those in or near retirement. No doubt states are already actively recruiting and face the same challenges as other employers in addition to government and political hurdles. In the meantime, leverage consultants and NAIC staff in the meantime and charge back the industry.
• Pay regulators more and pay our most in-demand talent even more. The industry would hopefully provide financial and political support for such salary modernization through increased application and other fees, many of which have not been increased for decades. Consider charging even more for complex application review.
• Focus consumer protection and market conduct regulation on insurance sold to individuals who have less ability to protect themselves. The commercial market should work just fine on its own. At least give this a try while we focus currently limited resources on the parts of the market less conducive to self-regulation and market forces.
• Use broad exemptions from rate and form regulation and related requirements for insurance offered to insureds meeting liberal exemption criteria, e.g., premium spend, number of employees or use of an insurance advisor. And consider the cost and value to consumers of requiring any commercial rate and form filings at all. Congress has already addressed several issues in these markets and could probably achieve these additional changes for all states in two pages.
• Invest in technology and explore automating purely administrative tasks and standardizing application forms and processes nationwide to reduce paperwork and administrative costs that are inevitably passed along to consumers. Consider eliminating any filing requirement or process that cannot be readily shown to support consumer protection or insurer solvency.
• In addition to standardizing application forms and processes, improve speed to market by quickly approving (or disapproving) new capital, carriers, licensees, license expansion and products. Eliminate insurance carrier seasoning altogether or vastly expand regulators’ waiver discretion. Faithfully adhere to (and enact more) deemer statutes.
• Consider at least starting a dialogue about how to make insurance regulation more politically agnostic – e.g., by de-coupling the appointed commissioner’s term from the governor’s elected term.

State regulators have long been underpaid, underappreciated and overworked. They face political and economic pressures from every direction. And still our state-based system is incredibly strong.

But any one or more of the above modernization improvements would help us do better. New capital, licensees and products could reach both local and national markets more quickly. An expanded, empowered and fairly compensated regulator cohort, and less politics, could better balance market interests. More deregulation of insurance sold to sophisticated consumers could refine regulatory focus. Less uncertainty around uses of technology could encourage investment in innovation.

State insurance departments and the NAIC could work together on some of these efforts and consider seeking an assist from the federal government in those areas in which it has already acted to improve uniformity.

Happy Holidays to All!

These are the author’s personal opinions and should not be attributed to the law firm or to any state or firm client.

Topics USA Legislation