Move Towards a National Model

Published December 22, 2008

Insurers face increasing competition from financial institutions for products the insurers alone once provided. The current economic crisis, along with growing accusations of corruption being leveled against insurance companies nationwide, including the recently bailed-out AIG, demonstrates that wholesale changes are needed in the way insurers are regulated.

America’s decrepit 50-state insurance system, with its patchwork of mandates and rules, handicaps insurers and consumers alike. But the system finally is headed towards modernization and substantial change thanks to many legislators across the nation who recognize that placing the insurance industry at this disadvantage benefits no one.

The proposed reforms would level the playing field by allowing insurers to organize themselves under either federal or state law with an optional federal charter (OFC).

The OFC provides a sound model for modernization and accountability, offering flexibility for insurers and expanded options for consumers. The OFC enables insurance companies to compete both domestically and globally while creating uniform standards to guard against corruption.

In a recent 50-state study of property and casualty insurance regulation conducted by The Heartland Institute, we found the availability and quality of insurance products improved most when regulatory barriers to entry and competition were reduced. Consumers in Illinois and Vermont—two states that encourage competition and don’t attempt to manipulate the insurance market—benefit from having access to more insurance providers, and therefore more competitive prices, than any other state.