One Step Closer
Another step toward the adoption of an optional federal charter (OFC) was taken at the end of September when Congressman Ed Royce (R-Calif.) introduced the National Insurance Act of 2006 (HR 6225), a companion bill to a Senate bill (S.2509) of the same name put forward in April by senators John Sununu (R-N.H.) and Tim Johnson (D-S.D.). But whether that step advances toward enactment of OFC law or is a precursor of more-modest reform measures depends on whom you ask -- and that leaves open the question of how an OFC would affect insurers' long-term technology investment.
"I think many insurers are pausing in their policy admin strategies because a great amount of work would disappear if they could opt for federal charter," says Michael J. Bernaski, a Minneapolis-based independent consultant who has served in senior IT roles for Accenture (Chicago) and The Hartford (Hartford).
Differing Opinions
In a prepared statement, the American Council of Life Insurers (ACLI) praised the bill for paving the way to a "streamlined regulatory structure" that would do away with "today's patchwork system of state laws and regulations [that] has fostered a system of inefficiencies." For its part, the property and casualty industry's National Association of Mutual Insurance Companies (NAMIC) acknowledged problems with the current regulatory structure but took the position that "reform is best accomplished at the state level" in a prepared statement in response to Royce's bill.
Whatever the fallout of the November congressional elections, the bill will be given high priority, according to Jack Dolan, a spokesman for the ACLI. "We hear insurance reform is on the plate of both Republicans and Democrats," he says.
Whether that debate is likely to be fruitful depends heavily on reaching agreement within the insurance industry, argues Justin Roth, senior director for federal affairs, NAMIC. Despite unanimous support of HR 6225 within the life insurance sector, "The P&C industry is extremely divided," Roth notes. "Typically, Congress is reluctant to act on legislation affecting a particular industry unless there is consensus."
As an example of Congress' willingness to act in the presence of such consensus, Roth cites the recent passage of the Nonadmitted and Reinsurance Reform Act of 2006 (HR 5637). According to a statement issued by the House Committee on Financial Services, HR 5637 would provide several reforms needed to streamline the nonadmitted insurance and reinsurance markets, while conserving the states' regulatory and enforcement authority for the placement of nonadmitted insurance and the government of reinsurance contracts.
But while the passage of HR 5637 does indeed show the value of consensus, its introduction also is a measure of Congress' appetite for reform. "The introduction of the [House and Senate] National Insurance Acts of 2006 is consistent with that trend," according to Bernaski, who believes that an OFC eventually will be adopted because the benefits to consumers outweigh the downside to such regulation. Adoption also would benefit vendors, Bernaski adds, noting that they could offer more-comprehensive functionality out of the box for a federally oriented solution than for a product built for multiple states.
As things stand, "The package solutions are finding their ways into regional insurers who have much simpler geographic needs," according to Bernaski. "Few national companies are buying and adopting packages because the cost is so high and because they have to develop it for [a large number of states]. The OFC will help the software industry come up with more-complete solutions."
Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio
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