Draft legislation under consideration this morning by a U.S. House subcommittee would strike a blow against financial transparency and serve to protect the lucrative monopoly on insurance financial data enjoyed by state regulators’ private trade association.
As created by the Dodd-Frank Act, the Federal Insurance Office was intended to correct the federal government’s longstanding blind spot for insurance by creating a central repository of insurance expertise within the U.S. Treasury Department that is charged with “monitoring all aspects of the insurance industry.”
But a draft bill set for discussion before the House Financial Services Committee’s insurance subcommittee would scale back FIO’s power to conduct that oversight by leaving it beholden to state insurance regulators for any information it might need. Language slipped into the measure would prohibit the office from making available to the public any data collected from the states or their “collective agent,” the National Association of Insurance Commissioners.
The following statement from R.J. Lehmann, deputy director of The Heartland Institute’s Center on Finance, Insurance, and Real Estate, may be used for attribution. He can be reached for additional comment at [email protected] or 202/525-5726.
“In no other industry would you see regulators fighting to keep information about the financial health of regulated firms a secret, but that is just one unfortunate consequence of the monopoly powers we have allowed to accrue to the NAIC. Statutory insurance data is big business for the NAIC, which projects it will earn $25.9 million in 2012 from fees it charges the industry to file their financial reports, and another $18.9 million in revenues by selling that data to analytics firms, rating agencies and big institutional investors.
“Rather than suppressing the FIO’s ability to share insurance data, the office should be encouraged to follow the model set by the Securities and Exchange Commission, which makes electronic filings of registered companies freely available to the public through its online, open-source EDGAR service. Similarly, the Federal Reserve makes the quarterly and annual financial reports of bank holding companies available to the public through its National Information Center. But in the field of insurance, such data are withheld from policyholders, journalists, investors, academics, rating agencies, consumer advocates, and other members of the public solely to benefit a private 501(c)(3) corporation.
“It is a common complaint of companies in any industry that regulators fail to appreciate the time, manpower, and resources that go into complying with requests for data. In insurance, that concern is raised to a new level. Regulators, through their trade association, actually profit from the data they collect. There exists a conflict of interest that brings with it inevitable questions about whether the incentive to sell insurers’ data is driving public policy.
“Some have attempted to defend the NAIC’s monopoly by arguing that revenues from the NAIC’s data sales allow it to provide needed services to underfunded state insurance departments. But a look at the NAIC’s own Insurance Department Resources Report would suggest that, in fact, insurance departments already raise far more cash than they need.
“Taken together, the 50 states, Puerto Rico, and the District of Columbia collected $2.48 billion in regulatory fees and assessments from the insurance industry in 2010, but spent only half that total, $1.24 billion, on regulatory activities. Insurance departments also collected $63.5 million in fines and penalties and another $1.22 billion in miscellaneous revenues, while states separately collected a whopping $14.82 billion in insurance premium taxes. Put together, states spent only a measly 6.7 percent of the $18.58 billion they collected from the insurance industry last year on regulating the industry.
“The problem has never been that state insurance departments lack resources. It is that states have grown accustomed to viewing the regulation of insurance as a profit center, a slush fund from which lawmakers can perpetually draw to patch other holes in state budgets. States can certainly work out a system to share resources and services that doesn’t require keeping financial data collected by public employees with public resources a secret from the public.”
The Heartland Institute is a 27-year-old national nonprofit organization with offices in Chicago, Illinois; Washington, DC; Austin, Texas; Tallahassee, Florida; and Columbus, Ohio. Its mission is to discover, develop, and promote free-market solutions to social and economic problems. For more information, visit its Web site or call 312/377-4000.