The question of who should regulate the insurance industry has been debated in the United States since the time of the Civil War. Insurance continues to be...
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The question of who should regulate the insurance industry has been debated in the United States since the time of the Civil War. Insurance continues to be regulated by the states despite several challenges to their authority over the years. The states’ authority over insurance was supported in various courts' decisions until the Southeastern Underwriters case in 1944. In Southern Underwriters, the Supreme Court determined that the commerce clause of the Constitution applied to insurance and that insurance companies (and agents) were subject to federal antitrust law. The Court’s ruling caused the states and the industry to push for the McCarran-Ferguson Act (MFA) in 1945, which delegated the regulation of insurance to the states.
At that time, the majority of insurance companies favored state over federal insurance regulation. However, today the bulk of insurance is written by national (and international) companies operating across state borders. Many of these insurers have come to view state regulation as an increasing drag on their efficiency and competitiveness: these insurers now support a federal regulatory system. This is reflected in recent proposals that would establish an optional federal charter (OFC) for insurance companies and agents. The proposal would allow them to choose to be federally regulated and exempt from state regulation. As you are quite aware, there is fierce opposition to an OFC from the states and from state-oriented segments of the industry.
One of the main problems with the OFC approach is that it is based upon a structure designed in the 1860s through the National Banking Act and cobbled together with state consumer protection language. The OFC approach is based on a view of the world that had changed significantly in the last two years. While the authors of the proposal now add a systemic risk regulator to the mix, they still beg some questions about who should be subject to federal regulation.
The current problem facing insurance regulation, though, is quite different from regulatory issues of the past century. Today’s problem is not based on regulation of solvency, market conduct, or insurance pricing which have been undertaken by the states. It is, instead, the problem of systemic risk which, for the most part, has not been an issue with the insurance industry. Further, systemic risk is of national rather than state in scope. Specifically, the types of market failures used historically to justify regulation of the insurance industry have been ones that pertain to local markets. This is in direct contrast to the effects a failure of a company like AIG has on national and international markets.
GST taxpayers can't claim any pending input tax credit if this return is not filed by November 30, 2024 for FY 2023-24
