Honestly, do we really want to create and establish a new federal bureaucracy that controls how we create, sell and distribute something like insurance?
Let’s forget for a second that the chances of this actually happening are pretty slim. The various departments of insurance remain such a revenue source for states that they’ll fight tooth and nail to maintain the status quo. Never mind how unlikely it is insurance commissioners would support putting themselves out of work.
That said, if it could happen, would it be a good idea? Of course not.
First and foremost, states are the place for innovation and creation. An insurance policy drafted here in Colorado might allow a healthy and safe new concept that wouldn’t have a prayer at the federal level. A federal department wouldn’t and couldn’t allow any such experimentation, and the industry as a whole would become stale with outdated and outmoded products and regulations. I think it’s safe to say we wouldn’t have witnessed the late 1990s explosion of critical illness products if it were up to the feds.
And every state is different. New York, home to some of the toughest regulations in the country, has every right to them—in New York. However, despite some New York regulator’s opinion, they shouldn’t have the right to tell consumers, or carriers in, say, my home state of Missouri, what products should be bought, or how much reserves a company based in Oklahoma should have on hand. This isn’t a “one size fits all” nation, and it certainly isn’t a “one size fits all” industry.
Despite arguments to the contrary, an insurance regulator in Charleston, W.V., will have a much better idea of what will benefit or hurt a consumer in Morgantown than a federal public employee in Washington. The state regulator probably has either grown up with a coal miner or knows a coal miner and understands their needs and how to protect them and the company more than some actuary from Boston who moved straight to a federal job after finishing school. To suggest otherwise hints at a position based on typical elitist assumptions.
One major benefit of state-run insurance departments is how they respond to emergency situations. Just look at Katrina. The insurance commissioners of Louisiana and Mississippi stepped up for the consumers of their states by pressuring the property and casualty companies to pay the warranted claims due in both states. It’s more than the FEMA director would have managed.
The argument that the departments of insurance in each state are revenue drivers remains an interesting point. It’s obvious states aren’t getting rich, but they do provide some revenue and in this economic climate, it’d hurt to deprive the states of anymore revenue and cost more jobs.
Overall, the argument a federal department of insurance would make the industry a leaner and more efficient market lacks credibility as well as probability. Besides, it’s not likely Mitch McConnell or Eric Cantor would allow another federal regulatory agency to sprout up no matter how much good it would or wouldn’t do.
But on the other hand...