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Federal vs. State Regulation of Insurance – National Governors Association Letter

April 16, 2014


In a recent letter to the US Treasury (FIO), the National Governors Association (NGA) has declared their support of the current model of state-run insurance regulations. Their letter comes in response to a proposed regulatory change that FIO recommended earlier this year. The NGA worries this will institute a dual regulatory process and has stated they “stand ready to defend and protect the state system.”

State versus Federal insurance regulation is not a new discussion. As far back as 1945, Congress has been passing around the idea of who is best left to regulate the insurance industry (the 1945 decision was the individual states).

The argument debates whether a single national regulator would bring products to market faster and increase competition between agents and carriers and give more options to consumers. The Professional Insurance Agents Association has praised the NGA’s letter, stating, “Our nation’s governors are correct: The current state-based system of insurance regulation, created and reaffirmed by Congress, is best at protecting the interests of insurance consumers, the insurance industry and our nation’s economy.”

Recent issues with the need for gap coverage in the new, but quickly growing, rideshare industry (companies like Uber and Lyft) highlight the need for continued regulation on a more local level. While the rideshare industry has grown to a multistate size, the industry started in a region and grew from there.

These rideshare companies are debating whether the company or an individual driver should buy gap coverage between personal auto policies and a corporate auto policy, especially for times a driver is available but is not chauffeuring a customer. Personal auto policies exclude coverage for private vehicles transporting paying customers. Localized insurance needs like this can be more quickly addressed by state regulators, with coverage suggested or new policy language adopted much faster than a national regulator might. National regulation would attempt to focus on 50 states’ needs, rather than individualize for one. While the rideshare coverage questions are still being debated, California has been able to respond quickly and suggest which changes needed to be made.

Individual states also have different rules about how auto insurance should be written and what coverage should apply. A federal rule on car-sharing coverage could create confusion in the marketplace by possibly contradicting existing state laws and policy coverages.

WSRB has previously pointed out the proven track record of success of our state-based insurance regulatory system. We would like to join the NAIC, PIA, and other agent and company groups in commending the NGA for their letter and their willingness to stand ready to defend the current system.


Article by: Kristen Skinner

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