Insurance shows that federalism works
The ACIR had a respected staff and performed studies which informed serious debates about block grants, welfare reform, criminal law and the growing problem of interstate smuggling, which looked to arbitrage differences in state taxation of products like cigarettes. The commission itself was composed of members of the U.S. House and Senate, state legislators, governors, mayors and county commissioners, and a handful of non-governmental members with credentials and reputations in public policy.
The Clinton administration reportedly withdrew support for the ACIR over its handling of unfunded federal mandates, and it folded in the fall of 1996. It is still possible to find its excellent work referenced where appropriate.
We probably need something to take its place, because all levels of government have been positioning themselves to perform all governmental tasks, including a few new ones that have been discovered in the meantime.
Last week, the National Conference of Insurance Legislators met for the third and final time this year. As the name would suggest, this is an organization to which many states pay dues so that the lawmakers who mostly run or at least sit on the legislative committees where insurance issues are debated can compare notes and develop model legislation on topics as varied as reuse of undeployed airbags and best practices for opioid regulation to curb the rising tide of abuse of largely prescription drugs— a major issue in workers compensation in many states.
The meetings are also increasingly battlegrounds for jurisdiction with not just our own federal government, but with the European Union and other multinational associations, over significant differences in how to measure the solvency of these companies; even though it is clear that state-based regulation kept the insurance industry sound while other American financial institutions were weakened and many broken. Added to the mix is the association for state insurance regulators, which, through its firm grasp on certification requirements of insurance companies, has as much power over them as a multi-million dollar central staff and 11,500 state employees around the country can produce.
One of the issues on the near horizon is a new international accounting system that would usher in immediate new tests for soundness, which many of the American institutions mentioned above are viewing with alarm. A new method of matching risk with capital requirements could potentially show many companies as technically insolvent. Which, I assure you, is a lot bigger deal in the private sector than in government.
Against this backdrop of concern about intrusion into a state-based system that has worked reasonably well for over 150 years, the association has written two letters in the last three weeks to congressional leadership, the Federal Insurance Office, the Financial Stability Oversight Council, the Council of State Governments, the National Association of Insurance Commissioners, the National Conference of State Legislatures and the National Governors Association. Both of these letters assert that state-based regulation covering one-third of the insured premium volume in the world has benefited consumers overall and managed all insurance crises. Actually, six states have insurance markets placing them in the top twenty markets on the planet.
According to Alabama state Rep. Greg Wren, the new NCOIL president:
“Since the financial crisis, there has been an increased focus on global financial regulation. Some of these international regulatory efforts could have a significant influence on state-based insurance regulation, which successfully withstood the financial crisis. It is vital that state lawmakers, who determine insurance public policy in the states, play a prominent role in any international insurance regulatory discussion moving forward.”
Wren and the NCOIL leadership are aware that a prevalent academic theory and the overwhelming view from public policy organizations on the right is that the government produced, directed and to some degree cast the housing bubble that caused so much damage to our economy when it burst in 2007. They do not want to see a more nationalized or even internationalized system replacing what the states have always been capable of handling.
If we still had a good vehicle to sort out what level of government should take on what regulatory function, we could save billions in duplication costs, and we would probably have a more rational approach to protecting customers in financial transactions. Now is time for the discussion to get serious, as the states — meeting in Mount Vernon this past weekend to consider constitutional strategies — move toward wresting back their authority from dysfunctional national and supranational attempts to sort out rights and responsibilities for their citizens.