Federal regulation of the U.S. insurance industry is coming - maybe not this year, or even for a few years, but it is inevitable. Several recent developments underscore that inevitability, and it is essential that all insurance technology executives pay heed - whether they work for public or mutual companies, large or small firms, multiline or niche players - because the inexorable move away from a state-by-state regulatory model already is placing a new set of complex demands on insurance IT organizations and the executives who manage them.
In June, the Optional Federal Charter Coalition (OFCC) - which is comprised of 135 national and regional insurance companies and agencies, banks and trade associations - asked the U.S. Senate to enact optional federal insurance charter legislation. The group is advocating a dual system in which carriers and agents would choose between state and federal regulation. However, according to OFCC, federal regulation would offer greater product choice and portability to companies, agents and consumers. And even though the NAIC, not surprisingly, generally is opposed to a structural move away from the statutory regulatory model, the association also has gone on the record as supporting regulatory reform that enables more uniformity.
The OFCC proposal is only a proposal - putting an idea out there for debate and attitude gauging. But regardless of what kind of response it gets and what happens with near-term initiatives such as the State Modernization and Regulation Transparency (SMART) Act that is being reviewed by Congress, the reality is that insurance companies are operating in an increasingly federal (and, in some cases, global) regulatory environment. There are the all-too-familiar requirements of regulations such as Sarbanes-Oxley, HIPAA and the PATRIOT Act. International accounting standards are being developed by the International Accounting Standards Board (IASB). And, reacting to the spate of violations of customer information security, the Federal Deposit Insurance Corp. (FDIC) is urging U.S. banks to "do more" to protect the security and confidentiality of customer data - can it be long before officials in Washington, D.C., turn their attention to the entire financial services industry on this matter?
Change is coming. Preparation, not denial, will provide the advantage.