A conference is being held at the American Enterprise Institute tomorrow (7/9/08) on the "Future of Insurance Regulation." Coincidentally, the US House Financial Services Subcommittee on Capital Markets and Insurance is also meeting tomorrow to mark-up proposals of H.R. 5840, the Insurance Information Act, which would establish an Office of Insurance Information within Treasury, "NARAB II", a national system to process non-resident producer licensing, and the Increasing Insurance Coverage Options for Consumers Act.
Of course I follow the discussions of federal vs. state regulation of insurance, but one of my frustrations with what I often read and hear is the assertion that federal regulation represents efficiency, with the optional nature of a proposed federal charter representing competition among regulators. State regulation on the other hand is generally presented as immovable and irretrievably mired in inefficiency and insensitivity to competitive demands. This appears to be the dominant theme at the AEI conference, yet it seems simplistic to me in several ways. One of them is that when we make such a comparison, we are looking at a system that has yet to be fully conceived versus one that has a very long and complicated history. Who among us can't dream? The challenges obviously arise when systems are implemented and develop and are presented with difficult decisions and must draft regulations and deal with real life on both a day-to-day basis and in crisis. Then inefficiencies and bureaucracies begin to take hold and grow. I have not yet read or seen any reason why a federal agency would not completely dominate an alternative state system and simultaneously grow to become large and inefficient.
But there is another option that has been proposed by some that I hear much less about, but which I find very interesting. This option is called the Single-License Approach to Regulating Insurance and it is discussed in a paper authored by Henry N. Butler, Executive Director of the Searle Center on Law, Regulation and Economic Growth at Northwestern University School of Law and Larry E. Ribstein, the Mildred van Voorhis Jones Chair in Law at University of Illinois College of Law. The paper is available for download at no charge from the Social Science Research Network.
One of the comparisons with insurance regulation that I found interesting in this paper was that with corporate chartering and a more real jurisdictional competition. We have all heard the banking comparison, but in looking at corporate chartering as another alternative with which to compare, a single license approach emerges that, to me, seems to offer a real and viable alternative to the overwhelmingly dominant federal regulation movement.
