Bob Cooper Drake University Mark Dorfman UNC at Charlotte

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Bob CooperDrake UniversityMark DorfmanUNC
at Charlotte

• A Proposal for Modernizing U.S. Insurance
  Regulation with a European Union Influence

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CURRENT U.S. STATE-BASED SYSTEMKEY PROBLEMS

• Real uniformity of regulatory standards among
  states cannot be realized under a state-based
  system.
• The different regulatory jurisdictions have
  different requirements and processes for prior
  approval of a product before it can be offered to
  the consumer.

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CURRENT U.S. STATE-BASED SYSTEMKEY PROBLEMS
(Cont.)

• Rather than being centered on market-based
  regulations, the current insurance regulatory
  system, with some exceptions, is based on
  government price and product controls.
• Regulation of market conduct is currently in
  disarray.

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EU REGULATORY SYSTEM

• Insurance Regulated Jointly By
• European Union
• Member States (Nations)
• European Union Adopts Directives and Supervises
  their Implementation by the Member States
• Member States Provide Day-to-Day Regulation of
  Insurers and Producers

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EU REGULATORY SYSTEM
Council European Parliament
Court of Justice
European Commission

• Member States
• Legislature
• Competent Authority

EIOPC
CEIOPS
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RIGHT TO DO BUSINESS

• Insurers Authorization given by Home Member
  States competent authority
• Producers Registered by Home Member States
  competent authorities
• Can do business throughout the EU
• Authorization/Registration based on
• Minimum Standards Directives
• Additional Requirements can be imposed only on
  insurers or producers authorized/registered by
  that Member State

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FINANCIAL SUPERVISION

• Insurers Financial Supervision by Home Member
  States competent authority no matter where
  conducting business in the EU
• Financial Supervision based on
• Minimum Standards Directives
• Additional Requirements can be imposed only on
  insurers authorized to do business by that Member
  State

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MARKET CONDUCT SUPERVISION

• Insurers and Producers Supervised by Host
  Member State where they are doing business
• Supervision based on
• Standards set by Host Member State
• Standards must serve the General Good
• Creates same problems as in the U.S. due to lack
  of uniformity

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PROPOSED U.S. SYSTEM

• Insurance Regulated Jointly By
• Federal Government
• States
• Federal Government -- Adopts Laws and
  Regulations, and Supervises their Implementation
  by the States
• States Provide Day-to-Day Regulation of
  Insurers and Producers

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U.S. REGULATORY SYSTEM
Congress
Federal Courts
Federal Insurance Office (FIO)

• States
• Legislature
• Insurance Commissioner
• State Courts

NAIC
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LICENSE TO DO BUSINESS

• Insurers Licensed by Home States insurance
  commissioner
• Producers Licensed by Home States insurance
  commissioner
• Can do business throughout the U.S.
• Licensing based on
• Minimum Standards Federal Laws/Regs.
• Additional Requirements can be imposed only on
  insurers or producers licensed by that State

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FINANCIAL REGULATION

• Insurers Financial Regulation conducted
  exclusively by Home States insurance
  commissioner
• Financial Regulation based on
• Minimum Standards Federal Laws and Regulations
• Additional Requirements can be imposed only on
  insurers licensed by that State

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MARKET CONDUCT REGULATION

• Insurers and Producers Regulated by Host State
  where they are doing business
• Regulation based on Standards established by
  Federal Law/Regs.
• Standards set by Host Member State
• Standards must serve the General Good
• Creates uniformity

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PROPOSAL OVERCOMES KEY CRITICISMS OF

• Efforts to Modernize the Current State-Based
  System (see Table 1 in paper)
• Optional Federal Charter Proposal (see Table 1 in
  paper)
• Rep. Oxleys Roadmap to Reform
• Would create a federal official with no
  regulatory authority
• Federal prompting (e.g., GLB Act) alone cannot
  bring about true uniformity