[Corp. Watch] "Regulation shopping" would allows insurers to ignore state laws - just like the banks

[Corporation Watch]

The Influence Game: Insurers Eye New Regulator

  By Julie Hirschfeld Davis

(Associated Press, April 22) -- Not many financial companies saw an  
opportunity in the current economic meltdown. But large insurers did,  
and now they're using it to lobby for a lucrative change they've  
sought unsuccessfully for years.

	Industry estimates suggest a rather obscure change in federal law  
could be worth billions of dollars annually to insurers. Key lawmakers  
and Obama administration officials say they're open to it, and  
industry lobbyists see the drive to overhaul financial rules in the  
wake of the meltdown as their best chance in a long time to achieve it.

	The change would give insurance companies the option of escaping  
state regulators by setting up a new federal agency and letting them  
choose whose rules to obey -- a proposal consumer advocates view with  
horror.

	If the companies get their way, the financial crackdown that  
President Obama and Congress have promised as a way to prevent another  
Wall Street crisis will come with a substantial easing up on insurance  
companies.

	Known as an "optional federal charter," the system would free large  
insurers, which now can be subject to as many as 51 different sets of  
rules and overseers in the states where they operate, from a  
regulatory web they say stifles their business and leaves the federal  
government blind to potential industry-wide problems.

	It would function much like the system now used to regulate banks,  
allowing insurance companies to decide whether to be chartered and  
overseen by the federal government or by individual states.

	Major insurers -- including Allstate, State Farm, and Zurich -- and  
the big financial trade associations argue that the change would  
create a much-needed federal overseer for a gargantuan sector that  
currently has no national authority looking over its shoulder.

	Debate on sweeping new financial laws has "created an opportunity,"  
said Leigh Ann Pusey, top lobbyist at the American Insurance  
Association, which represents large property and casualty insurers.  
"You can't really look at these concepts and ideas that are out there  
without looking at having a federal regulator for the insurance  
industry."

	Consumer advocates argue that such a system would let insurance  
companies shop around for the weakest rules and lead to the same kinds  
of abuses and reckless risk-taking that brought other financial  
services firms to their knees.

	Doug Heller of California-based Consumer Watchdog said it would be  
"impossible" for the federal government to properly regulate the  
industry. "The idea that they would contemplate giving big financial  
corporations a choice of who regulates them -- after we saw how that  
worked for the banks -- is just legislative insanity," he said.

	Far from strengthening oversight, consumer advocates call it a push  
for deregulation that would harm consumers and fly in the face of  
Obama's promise not to let financial companies "cherry pick"  
regulators in a bid to escape tough rules.

	"It'll be a question of who can 'impress' the insurance companies the  
most with their regulations, and [to them] that means, 'Who will let  
us do whatever we want without regard to what protects consumers?'"  
Heller said. "You will have the federal government and state  
regulators in a race to the regulatory bottom."

	Public scrutiny of failed insurance giant American International  
Group (AIG) has helped create momentum for the idea of national rules  
for the industry. That's despite the fact that the company's troubles  
were mostly caused by the AIG's exotic investments rather than its  
insurance practices.

	"This environment allows the best chance yet to deal with this  
issue," said Brian Conklin, top lobbyist for USAA, which insures  
military personnel. He said the current state-by-state patchwork  
creates yet "another hindrance" for USAA's customers, many of whom are  
forced to move each year and often can't take their insurance with them.

	Together with their trade groups, the companies have dumped tens of  
millions of dollars into lobbying for the change in recent months.  
They've also given freely to politicians in positions to help them  
achieve it.

	President Obama is among the top recipients of insurance industry  
campaign money, taking in $2.2 million in the run-up to the last  
election, according to the campaign finance watchdog Center for  
Responsive Politics.

	Other top recipients include Rep. Paul Kanjorski (D-Pa.), who chairs  
the House subcommittee that handles insurance, and Rep. Melissa Bean  
(D-Ill.), who's pushing legislation to accomplish the switch.

	The idea is not without controversy inside the insurance industry,  
where smaller companies fear their businesses would be hurt -- and  
their very existence threatened -- by a new set of federal rules  
favoring their larger rivals. "You could create a very unlevel playing  
field," said Jimi Grande of the National Association of Mutual  
Insurance Companies.

	The National Association of [state] Insurance Commissioners (NAIC),  
which now holds a monopoly on insurance regulation, has lobbied  
intensely against the change.

	"What we have now is duplication, overlap, multiple eyes on a problem  
and checks and balances, so when one regulator makes a mistake,  
there's another one waiting in the wings to correct it," said Therese  
Vaughan, NAIC's president. "If you want to add another layer of eyes,  
that's fine with us. Just don't take our eyes off."

	Insiders acknowledge that the switch could be a tough political sell  
at a time when the public is skeptical of financial firms, and  
lawmakers could be reluctant to give any company a choice of regulators.

	Some top lobbyists at work on the issue say the measure could be put  
off until later, or restricted to certain products such as life  
insurance, which functions more like a financial product.

	Still, the idea has sparked some high-profile interest. Treasury  
Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke  
have both said they are open to it. And Rep. Bean is a confidante of  
House Financial Services Committee chairman Barney Frank (D-Mass.),  
who has a lead role in drafting the financial overhaul.

	During a hearing last month, Frank said the issue is "very much on  
the agenda" of his panel.