COMMENTARY

Insurance Regulators and
"Consumer Federalism"

July 2002

By Donald J. Pfundstein*
for New Hampshire Business Review

Two years ago I had the pleasure of enjoying Phoenix's 109° "dry heat" to address an annual meeting of workers' compensation insurance professionals. This experience actually gave me a much more meaningful understanding of Dante's Inferno than did the Cliff Notes.

I took this opportunity in the desert to point out that a revolution in financial services had been underway for some time. A convergence of legislative and executive functions of government had occurred. Technology enabled the consumer to access quality and price irrespective of geographic location. I urged the audience to appreciate the context in which regulators approached the industry. In short, regulators needed to be relevant — focused on what really mattered.

I emphasized the point by suggesting that the National Association of Insurance Commissioners (NAIC) was appropriately working hard to assure that the "I" in NAIC stood for "Insurance," not "Irrelevant." Everyone seemed to get the point. Particularly, when they knew that Congress was being invited to take regulation of insurance away from the states.

One member of the audience strongly expressed his displeasure. He desired to be disassociated from my remarks. He apparently didn't get it, or was perhaps too afraid to admit it. Hopefully, for his organization's sake he gets it now.

The NAIC has moved aggressively to position its members as the unchallenged, exclusive protectors of the consumer of insurance products and services. As an association of state regulators, it's renewed focus is another excellent example of what I have previously described in this column as "consumer federalism" — the Populist driven movement to assume control over the relationship between a consumer and enormous, international businesses. Additionally, such an approach once successfully executed is the best defense against a proposed federal regulator. Because the federal agencies did such a nice job "enabling" the savings and loan debacle, Enron and WorldCom, we need them to protect the insurance buying public? No thank you!

The NAIC recently concluded its summer meeting in Philadelphia — not as hot as Phoenix, but not as enjoyable as Pittsburg, New Hampshire either, where the fishing should be pretty good now. Without question, consumer protection was what everyone was focused on. New Hampshire already leads the way in some areas — balanced regulation of the use of insurance or credit scores to appropriately price insurance products, for one.

A very interesting session in Philadelphia focused on whether consumers' use of class action lawsuits in a particular state infringed on the regulatory jurisdiction of insurance commissioners in other states. Not my words. The NAIC's senior counsel phrased the question this way. Looks like "consumer federalism" at its best. No state should transfer its consumer protection obligations to the courts of some other state!

On another critical matter, congratulations business for your recent success in getting all major gubernatorial candidates to unanimously oppose increased business taxes. Well done. Now, let's see. There are 424 legislators to work on, assuming we figure out where the voting districts are located. Do not naively declare victory and fall back asleep! Be vigilant, business. I've never seen a difficult legislative session where commitments, oaths, affirmations or pledges are not conveniently "redefined." Remain focused. It's time to work on the legislators!

Remember: No to Business Taxes or No Vote!

*Donald J. Pfundstein is admitted in New Hampshire.

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