NCCI’s second day – state v fed regulation

Current Florida Insurance Commissioner and NAIC Chair Kevin McCarty led off his talk with a description of drug repackaging as a “license to steal.”. I absolutely agree. He expressed optimism when noting the legislative effort will continue next year; on that I am less sanguine.
Most of his talk was about the “incremental encroachment of the federal government into the regulation of insurance.” Noting that insurance has been regulated under McCarran Ferguson for decades, McCarty opined that the current state-based regulation has worked pretty well, if somewhat inefficiently.
McCarty took exception to the new Federal Insurance Office (FIO) created by the Dodd Frank bill. While FIO is explicitly not a regulatory agency, McCarty noted their various functions seem pretty similar to those performed by regulatory agencies. While much of the speech was a pretty dense, acronym-intensive discussion of financial stress tests, bank regulation, McCarty detailed FIO’s various research and reporting functions.
Continuing his advocacy for the state-based regulatory system, McCarty noted that there are very different market needs in different states, which require different regulations, while stating that it is necessary to reduce the frictional costs (his characterization) inherent in the state-by-state regulatory environment .
While McCarty et al may decry the interference of federal authorities in the insurance process, payers may be less negative after considering the additional costs inherent in state-specific regulation. According to a report in Insurance Journal earlier this week,
“Tyler Leverty, a professor of finance in the Tippie College of Business, says that the expenses associated with meeting regulations in every state in which an insurance company does business drive up compliance costs by 26 percent when compared to companies that are regulated by only one state.
“These high regulatory compliance costs reduce the technical efficiency of firms, deter firms from operating in additional states, and increase the price of insurance,” says Leverty.”
Finally, McCarty was asked for his views on the interstate sale of health insurance products, and seemed somewhat uncomfortable with the topic (not surprising as this is one of the main ideas promoted by GOP opponents of health reform)- noting that he wanted some regulatory authority over any out-of-state policy sellers to protect purchasers; McCarty stated a couple times that he did not want to oversell the benefit of interstate insurance sales, but concluded by allowing that they would probably most help with short term policies for college kids etc. There was a caveat; he thought “everything” should be tried, but he was not enthusiastic in that suggestion…