“Pick your option” – just say no!

Rebecca Mowbray’s Sunday food for thought was so filling that it took some time to digest all that she had to say about the Treasury Secretary Paulson’s proposal to allow insurance providers the option of operating under a federal charter or state regulation – a concept embodied in various “pick your option” legislation before Congress such as HR 3200, the National Insurance Act.

The chief reason for my slow digestion, however, was Mowbray’s lead posed an absolutely horrifying thought –

In dealing with all the insurance problems that arose with Hurricane Katrina, would it have made a difference for Louisiana homeowners if a federal insurance regulator in Washington was calling the shots rather than a state insurance commissioner in Louisiana?

– although it’s hard to think it could be any worse than we had with the inmates running the asylum.

Other opposition to the concept of an optional national charter is more tactfully stated – publicly.

Consumer advocates counter that “optional federal charter” is code for deregulation, and there’s nothing in it for policyholders. In their lobbying, deep-pocketed insurers would make sure that a federal system would resemble the most deregulated state systems, such as Illinois. Allowing companies to choose between being regulated by the states or the federal government would create a race to the bottom on regulation as the two systems would compete to attract insurers. Strong consumer-protection laws in California would be dismantled, and Florida would be powerless in its stand against insurance companies.

“I’m not opposed to a federal role, but the OFC is a bad idea because it gives the option to the insurance companies,” said Hunter, who will release a study this week on the effects of different regulatory systems on consumers. “If I’m a state and I want insurance companies to choose my system, I would lower my standard. It would decimate regulation.”

The kicker, Hunter said, is that Paulson’s proposal is short on details about consumer protection, but states explicitly that there would be no regulation of homeowners and auto insurance rates. He’s not kidding.

“While numerous arguments have been made to justify such rate regulation, they are unpersuasive,” Paulson’s proposal reads. “Insurers should neither be subject to rate regulation nor be required to use any particular rate, rating element or price.”

I choked on Paulson’s quote – but it would have taken the Heimlich Maneuver for Honest Abe to have spit out –

These capitalists generally act harmoniously and in concert to fleece the people, and now that they have got into a quarrel with themselves, we are called upon to appropriate the people’s money to settle the quarrel.

No doubt.

With many insurance companies operating across the entire country — and possibly thinking of new business opportunities overseas — some say the state system has outlived its usefulness. Getting licensed in each state, keeping up with rules for 56 states and territories, getting policy forms and rates approved in each place is simply too cumbersome and expensive for a national business. And besides, banks have the choice of being regulated by states or the federal government, so insurers say they want it too.

Too much work? Sorry. Maybe Abe can help them out there, too –

Labor is prior to and independent of capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed.

According to Mowbray, former Montana Governor Marc Racicot, now president of the American Insurance Association, calls the current system very fragmented.

How ironic, I was thinking of an “f” word to describe the current system, too – it just wasn’t fragmented – particularly when I realized that because the system is flush with money, it thinks it should be treated like a bank. It’s insurance. Think Medicaid.