Letter from Washington: Why we’re no longer supporting optional federal charter
Some forthcoming comments from the Center on Finance, Insurance and Real Estate to the newly created Federal Insurance Office are going to include a public reconsideration of a position we’ve taken in the past. In particular, we are no longer supporting an optional federal charter for property and casualty insurance.
Although some publications I helped to write before joining the team full-time do support an OFC, my work over the past two years rarely has alluded to OFC at all. Of course, there is no “live” OFC bill in this Congress. Quietly, we have even dropped its mention of an OFC from our “10 Principles of Property and Casualty Insurance” last year, mostly because I thought it wasn’t relevant anymore.
Now it’s time to go a step further: C-FIRE wouldn’t support an OFC at this time or any time in the near future. No matter how well-written or well-drafted a law is, I just don’t see a way to support it for now.
This isn’t because we believe that there should never be a federal role in P&C insurance or, indeed, that there should never, ever be an OFC. It’s a lot simpler than that. Like it or not, the Dodd-Frank Act is the largest, most sweeping overhaul of financial regulations since the Great Depression. Its potential consequences for the financial system are vast, wide-ranging and, in many respects, still unclear. Insurance and financial markets need time to digest this legislation before moving on to potentially even more wrenching changes.
Creating a new federal regulator, even a very well-designed one, simply isn’t wise now or any time in the near future. An OFC should still be on the table and, run properly, it could be a good idea. But, for now, it’s not worth thinking about.
Rebecca Wodder’s nomination to be the new assistant secretary for fish, wildlife and parks at the U.S. Interior Department remains stalled in the Senate. And that’s a shame. Wodder is not someone I would personally nominate for the job in that she’s a liberal, and I am not. But as I’ve written before, she has become controversial for reasons that conservative- and libertarian-minded environmentalists in particular should know about.
American Rivers, the group she headed, has ardently fought tons of big-government schemes to dam rivers, expand the flood insurance program, destroy wetlands and otherwise tamper with nature for the benefit of a few big businesses. If a liberal, Democratic president with a Senate of his own party cannot get a nomination like this through, then the prospects for a Republican president actually benefiting the environment by getting the government out of the way seem a lot dimmer. Wodder deserves to be confirmed post-haste.
Some farm-state lawmakers are pushing a new type of farm subsidy intended to protect farmers from “shallow crop losses” — basically, price declines. The proposal has three major problems: it’s not insurance; it doesn’t even take the form of insurance; and it’s a horrible idea.
Although legislative language still isn’t out on the program (there’s no shallow loss bill currently proposed) the sponsors, media reports have it, are referring to it as “free insurance” that covers farmers’ losses at levels below those covered by the crop insurance program. In return for this coverage, the farmers would not pay a dime.
This is not insurance by any definition of the word. Insurance exists to protect individuals from contingent uncertain losses. Quite simply, one cannot insure against things that happen in the ordinary course of business operations. Fluctuations in commodity prices and minor losses of crops are ordinary business operations; it’s the way farming works. Thus, the program simply does not meet the definition of insurance.
Furthermore, it’s a pure welfare program that does not even take the form of insurance; in fact, it’s “anti-insurance.” Many other efforts that are essentially welfare—Medicare, towing services provided by insurance companies—do look like insurance. They involve premiums, claims, risk retention and so forth. This involves none of those things.
Nearly all insurance programs involve some amount of risk retention for more routine expenses in the form of deductibles, co-pays or co-insurance. These fees slightly reduce the cost of catastrophic coverage and, just as importantly, discourage use of the insurance when it really isn’t needed. The new “shallow crop losses” program appears to do the opposite; it exists explicitly to eliminate such “shallow losses” from farmers’ thinking.
Finally, the idea is simply a really bad one by any potential measure. Aside from providing an income boost to farmers, it serves no public benefit whatsoever. It’s not something the government should do.