More than Money: What’s Really at Stake in the Quest for Insurance Regulatory Reform?

1. More than Money: What’s Really at Stake in the Quest for Insurance Regulatory Reform? Alan Liebowitz President OMNIA Life (Bermuda) Ltd.

2. More than Money: What’s Really at Stake in the Quest for Insurance Regulatory Reform? • In the wake of the Gramm-Leach- Bliley Act, Banks and Insurance Companies Agree: Uniformity & Efficiency must be brought to Insurance Regulation.

3. More than Money: What’s Really at Stake in the Quest for Insurance Regulatory Reform? The Problems • Inconsistent & Inefficient Regulation • Barriers to Product Introduction/ Innovations • Anti-Competitive Rate & Pricing Regulation • Inconsistent Market Conduct Regulation • A Patchwork of Privacy Regulation

4. More than Money: What’s Really at Stake in the Quest for Insurance Regulatory Reform? • How badly do bank-insurance organizations want this uniformity? • Banks and Insurers are willing to pay for Both state and federal regulation if the federal option promises one set of uniform rules.

5. More than Money: What’s Really at Stake in the Quest for Insurance Regulatory Reform? • Several organizations have seized on the idea that a federal system means loss of revenue for states. • Optional Federal Charter is the only idea that does not mean loss of revenue to states.

6. More than Money: What’s Really at Stake in the Quest for Insurance Regulatory Reform? • The Elements of the Optional Federal Charter (OFC) • Unified Federal Regulator in the Department of the Treasury • Charters National Companies/Agencies • Regulates Solvency, Market Conduct, Accounting of national entities

7. More than Money: What’s Really at Stake in the Quest for Insurance Regulatory Reform? • States Continue to regulate and license State chartered entities • States Continue to regulate solvency, market conduct, and accounting standards for State chartered entities.

8. More than Money: What’s Really at Stake in the Quest for Insurance Regulatory Reform? • Preserves State Premium Tax Structure • Cost of federal regulation borne by those entities that choose it. • States can use resources previously spent on regulating companies that choose national regulation for other purposes.

9. More than Money: What’s Really at Stake in the Quest for Insurance Regulatory Reform? • Preserves State Guaranty System • Only resorts to federal system if a particular state does not meet certain minimum standards.

10. More than Money: What’s Really at Stake in the Quest for Insurance Regulatory Reform? • For those who have concerns that the dual banking system isn’t the right model for insurance, go home and look at the state and federally chartered banks co-existing on the same street. • Does it appear to you that consumers are harmed by having so much choice?

11. More than Money: What’s Really at Stake in the Quest for Insurance Regulatory Reform? • Why the Interstate Compact won’t achieve uniformity. • States are free to join the Compact, or withdraw from it, at their leisure. • States may agree to the Compact’s rules for one product line but withhold agreement for another.

12. More than Money: What’s Really at Stake in the Quest for Insurance Regulatory Reform? • The Compact’s Catch-22: • To achieve uniformity, States must subordinate their right to regulate insurance to the drafters of the Compact. • To retain sovereignty, States will resist transferring their adjudicatory powers to the Compact’s stewards.

13. More than Money: What’s Really at Stake in the Quest for Insurance Regulatory Reform? • The NAIC’s proposed solutions will be more than 5 years in development and who knows how long in implementation. • Model laws, to be uniform, require legislators to forfeit their right to legislate. • Show of hands: How many state legislators are willing to give up this right?

14. More than Money: What’s Really at Stake in the Quest for Insurance Regulatory Reform? • Congressional Action will present the same dilemma: • House Financial Services Committee Chairman Mike Oxley and Subcommittee Chairman Richard Baker will create a “federal nexus” - mandates - that require state legislators to give up their right to legislate.

15. More than Money: What’s Really at Stake in the Quest for Insurance Regulatory Reform? • Federal Standards could set minimum federal criteria to which states would be free to layer additional requirements. • Far from achieving uniformity, minimum Federal Standards would exacerbate the patchwork system of disparate state laws, by adding a federal regulatory layer.

16. More than Money: What’s Really at Stake in the Quest for Insurance Regulatory Reform? • Alternatively, federal standards could be mandatory and exclusive; they would not be an alternative to state regulation; they would replace it. • State insurance commissioners would become agents of the federal government. • State legislators lose the right to legislate insurance questions.

17. More than Money: What’s Really at Stake in the Quest for Insurance Regulatory Reform? • Optional Federal Charter is the only modernization proposal that preserves state regulation as it is constructed right now. • Legislators don’t have to decide between uniformity and sovereignty. • States continue to regulate all insurance questions in their state, not just those the federal government leaves to them.

18. More than Money: What’s Really at Stake in the Quest for Insurance Regulatory Reform? • Preserving State Insurance Regulation • The debate about whether Congress will act or not is over; Congress will introduce reform bills this year.