Optional Federal Charter [04/03/09]

What is it? 

The insurance regulatory system is in need of reform and modernization to eliminate price controls and establish competitive prices, and to provide uniform consumer protections and regulatory efficiency.

On April 2, 2009, U.S. House members, Reps. Melissa Bean (D-IL) and Ed Royce (R-CA) introduced the National Insurance Consumer Protection Act, which would establish a federal charter system of regulation and supervision for insurers and insurance agents and producers. This legislation is similar to the "National Insurance Act" introduced by these members of Congress in 2007, In that it would allow insurance carries and agents the option of a federal license. It would require, however, insurers that are “systemically significant” to be federally licensed.

In general terms, the option of operating under a federal charter would establish a federal system of regulation and supervision for insurers. This system would be similar to the banking regulatory system under which companies can choose either a state or federal charter. Federally chartered companies would be primarily subject to federal law. They would continue to be subject to state laws related to taxation, participation in assigned risk plans, and other residual market mechanisms, as well as state requirements for compulsory coverage of workers compensation or motor vehicle insurance. These companies would not be subject to state regulation of pricing.
Insurance agents and brokers who wish to do business in more than one state could obtain one federal producer license, rather than separate producer licenses in each state where they maintain business operations.

Why is it important?

The property and casualty insurance marketplace is sensitive to the regulatory environment in which it operates. Currently, insurance products are largely regulated by the states. While some states have recognized that competitive markets best serve the needs of consumers, most states restrict free-market competition, to the detriment of consumers. The insurance industry is ideally suited to rely on competitive market forces to determine the prices and terms of products it offers to the public.

What is State Farm's Position? 

State Farm believes this new legislation introduced represents a sound framework for insurance regulatory reform. State Farm supports this as a means of achieving much needed modernization of our insurance regulatory system. A uniform, federal regulatory framework would allow State Farm and other insurers to serve their customers across the United States more efficiently, while clearly establishing consumer protections under the auspices of federal government oversight.

State Farm advocates for rate freedom and similar competitive pricing reforms. We support the elimination of price controls, believing that competitive market forces – good old fashioned competition – should determine the prices and terms of products the insurance industry offers the public.

State Farm and others in the insurance industry have been working for decades with legislators to reform our nation’s state-based insurance regulatory system. State Farm, in cooperation with others in the insurance industry, works to address insurance marketplace problems in states where the regulatory environment negatively impacts insurance products, prices and services.