Amy Traub

Insurance Industry Foxes to Select the Henhouse Guards?

Cross-posted from

There’s little question that the nation is badly in need of new financial regulation. We need common sense mortgage lending laws that ensure borrowers are only offered loans they have a reasonable chance of paying back. We should regulate hedge funds and arcane financial instruments. And credit card lending requires federal oversight. But in the process of enacting much needed federal financial rules one thing we shouldn’t do is preempt successful state regulations in cases where those are already in place.

Unfortunately, it looks like such ill-advised preemption is a possibility when it comes to state insurance laws. At a House Financial Service Committee hearing last month, Treasury Secretary Tim Geithner advocated “an optional federal charter” for insurance companies. Such a measure would allow insurance companies to dodge strict and effective state regulations that protect consumers in favor of federal laws that might be more lenient. At the top of the list of laws the industry would like to avoid is California’s tough insurance regulation (featured in DMI’s Marketplace of Ideas series in 2005) which has saved California insurance consumers more than a billion dollars on their homeowners, auto, and business insurance policies since 2003.

Federal regulation of the predominantly state regulated property and casualty insurance industry should be a part of the nation’s financial reforms. We could begin by repealing the antitrust exemption that allows insurance companies to engage in anti-competitive practices banned for most other industries. But federal action should be floor, not a ceiling, to protect consumer interests.

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Posted at 8:35 AM, Apr 16, 2009 in Federal Preemption | Insurance Industry
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