Modernization efforts are not just about the survival of the state system. It is about responding to change and, in turn, making the best insurance regulatory system in the world even better. State policymakers believe consumers are—and will continue to be—best served by the states. Regulators and legislators have accepted the challenge to make the state system of insurance regulation better, and they will continue to make progress in implementing this vision. When state regulators say there is a need for more uniformity, aren’t they making a case to get rid of the 50-regulator system? Having similar processes with local control and application is really the best of both worlds.
Consumers need to have the confidence that the people regulating their policies understand the area market. For example, Iowa consumers do not buy much hurricane insurance, and there is little need for crop insurance in New York City. However these types of insurance are very important in the regions in which they are sold. Wouldn’t it be better to create a federal agency like the SEC to oversee regulation? Clearly—since the Gramm-Leach-Bliley Act passed—conglomerates are being formed and banks and insurance and securities firms that are converging. But there are still fundamental differences between banking, securities and insurance. Insurance is a product with which consumers have many issues and questions. State insurance regulators need to be there on a local basis to deal with them. The state system has the expertise and has demonstrated that it can be responsive to these situations.
When consumers have a problem with their insurance, it is often at a time of tragedy—when a child needs an operation and the insurance company won’t pay for it, or a house just burned down and the insurance company is not coming through. So, insurance is very different from banking and securities products. Insurance also involves extremely complex contracts—so there is greater potential for consumer abuse.