bodies lobbying for approval of legislation that would permit
insurers to choose between existing state regulation or an optional
federal charter (OFC) have received a boost from a study undertaken
by Martin F Grace and Robert W Klein of the Center for Risk
Management and Insurance Research at Georgia State University.
Among positive findings from the perspective of OFC proponents was
the rapidly increasing cost of maintaining state regulators.
According to the study, commissioned by industry body the
American Council of Life Insurers (ACLI), over the budget years
2004 to 2008, the total of all state regulatory budgets increased
by 47 percent, substantially more than inflation which, measured by
changes in the consumer price index over the period, totalled 10
percent.
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In addition, the number of employees working for state insurance
departments increased markedly during the 2004 to 2008 budget
period, rising by 21 percent. This compared with a 4.4 percent
increase in the number of non-farm employees between the end of
2004 and the end of 2007, according to the US Department of
Labor.
“Growth in insurance regulatory expenses appears to be outstripping
inflation and general employment growth, suggesting an expansion of
regulatory activities with [negative] consequences for insurers,”
noted Grace and Klein.
Furthermore, compared with costs of regulation in other financial
services sectors, state insurance regulatory costs do not fare
well. According to the study, based on total state insurance
regulatory costs of $1.4 billion in 2007 plus regulatory
association the National Association of Insurance Commissioners’
$66.4 million budget, the average cost per regulated insurer in
2007 was $157,437. The average cost per $1 million of assets
regulated was $197.
In the federal bank regulatory structure comprising the Federal
Reserve Board, Office of Thrift Supervision, Federal Deposit
Insurance Corporation and the Office of the Comptroller of the
Currency, average costs per regulated institution in 2007 were
$85,249 while the average cost per $1 million of assets regulated
was $93.
The Grace-Klein study also disproved critics of an OFC who believe
it would damage state economies by diverting to the federal
government substantial amounts of revenue that now go to
states.
“We conclude that an OFC may have a beneficial effect on many state
economies and any negative effects are likely to be confined to a
few states, if any,” they stressed in their study.
Commenting, CEO and president of ACLI Frank Keating said the study
should reassure everyone that forecasts of state revenue and
employment losses would not be realised. “If anything, the increase
in insurance-related commerce that would naturally follow from a
more efficient and competitive industry if OFC is enacted would
benefit just about everybody,” said Keating.
