Optional federal charter
Encyclopedia
Optional Federal Charter (OFC) is a proposal to streamline and simplify US insurance regulation by allowing insurance
companies to choose between a current state-based regulatory system and a single federal regulatory agency. This would mean that insurance companies would be regulated something like banks: they could choose either a state charter or a federal one.
The proposed new federal regulatory system would be housed within the United States Department of the Treasury
. Treasury Secretary Henry Paulson
came out in favor of an Optional Federal Charter on March 31, 2008.
Groups on both sides of the issue have offered numerous arguments for and against the concept. Proponents promise a freer, more open market for insurance that would benefit consumers, increase product innovation, and help the economy. Opponents, on the other hand, believe that a new federal regulator will impose burdensome bureaucratic rules, squelch competition, and needlessly increase federal power.
Larger insurance companies which operate in multiple states favor the proposal, saying it would cut industry-wide costs by billions per year without reducing consumer protections and encourage free-market competition for insurance on the national level. They also say that the current state-run regulatory system makes it more difficult for insurers to bring innovative products to the market, and consumers are the ones who ultimately pay the price for the inefficiencies of the state-run regulatory system through higher prices. Groups that support an OFC include Agents For Change
, the American Insurance Association, the United States Chamber of Commerce
, and a variety of free-market groups such as the Competitive Enterprise Institute
and FreedomWorks. Both the 2007 Bloomberg-Schumer Report and the Financial Services Roundtable’s Blue Ribbon Commission on Mega Catastrophes have called on Congress to enact Optional Federal Charter legislation.
Opponents contend that insurers want an OFC because the current federal OFC bills would largely end the state practice of overseeing--and in some cases setting--the particular rates that insurance companies charge. Groups like the Consumer Federation of America
argue that this process of government rate setting tends to provide lower prices for consumers. Opponents also argue that the state-based system does a more efficient job responding to local consumer needs and desires.
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
companies to choose between a current state-based regulatory system and a single federal regulatory agency. This would mean that insurance companies would be regulated something like banks: they could choose either a state charter or a federal one.
The proposed new federal regulatory system would be housed within the United States Department of the Treasury
United States Department of the Treasury
The Department of the Treasury is an executive department and the treasury of the United States federal government. It was established by an Act of Congress in 1789 to manage government revenue...
. Treasury Secretary Henry Paulson
Henry Paulson
Henry Merritt "Hank" Paulson, Jr. is an American banker who served as the 74th United States Secretary of the Treasury. He previously served as the Chairman and Chief Executive Officer of Goldman Sachs.-Early life and family:...
came out in favor of an Optional Federal Charter on March 31, 2008.
Groups on both sides of the issue have offered numerous arguments for and against the concept. Proponents promise a freer, more open market for insurance that would benefit consumers, increase product innovation, and help the economy. Opponents, on the other hand, believe that a new federal regulator will impose burdensome bureaucratic rules, squelch competition, and needlessly increase federal power.
Larger insurance companies which operate in multiple states favor the proposal, saying it would cut industry-wide costs by billions per year without reducing consumer protections and encourage free-market competition for insurance on the national level. They also say that the current state-run regulatory system makes it more difficult for insurers to bring innovative products to the market, and consumers are the ones who ultimately pay the price for the inefficiencies of the state-run regulatory system through higher prices. Groups that support an OFC include Agents For Change
Agents For Change
Founded in 2005, Agents For Change is a grassroots trade association of over 8,500 insurance agents and brokers from across all lines of insurance working together to enact an optional federal charter to allow producers the option of being regulated at either the federal or state level...
, the American Insurance Association, the United States Chamber of Commerce
United States Chamber of Commerce
The United States Chamber of Commerce is an American lobbying group representing the interests of many businesses and trade associations. It is not an agency of the United States government....
, and a variety of free-market groups such as the Competitive Enterprise Institute
Competitive Enterprise Institute
The Competitive Enterprise Institute is a non-profit think tank founded on March 9, 1984 in Washington, D.C. by lobbyist Fred L. Smith, Jr to advance economic liberty and fight over-regulation by big government...
and FreedomWorks. Both the 2007 Bloomberg-Schumer Report and the Financial Services Roundtable’s Blue Ribbon Commission on Mega Catastrophes have called on Congress to enact Optional Federal Charter legislation.
Opponents contend that insurers want an OFC because the current federal OFC bills would largely end the state practice of overseeing--and in some cases setting--the particular rates that insurance companies charge. Groups like the Consumer Federation of America
Consumer Federation of America
The Consumer Federation of America is a non-profit organization founded in 1968 to advance consumer interests through research, education and advocacy....
argue that this process of government rate setting tends to provide lower prices for consumers. Opponents also argue that the state-based system does a more efficient job responding to local consumer needs and desires.
Groups in Favor
- Agents For ChangeAgents For ChangeFounded in 2005, Agents For Change is a grassroots trade association of over 8,500 insurance agents and brokers from across all lines of insurance working together to enact an optional federal charter to allow producers the option of being regulated at either the federal or state level...
- American Consumer InstituteAmerican Consumer InstituteThe American Consumer Institute Center for Citizen Research is a 501 nonprofit educational and research institute based in Reston, Virginia...
- American Insurance Association
- Competitive Enterprise InstituteCompetitive Enterprise InstituteThe Competitive Enterprise Institute is a non-profit think tank founded on March 9, 1984 in Washington, D.C. by lobbyist Fred L. Smith, Jr to advance economic liberty and fight over-regulation by big government...
- FreedomWorksFreedomWorksFreedomWorks is a conservative non-profit organization based in Washington D.C., United States. FreedomWorks trains volunteers, assists in campaigns, and encourages them to mobilize, interacting with both fellow citizens and their political representatives....
Groups in Opposition
- National Association of Insurance CommissionersNational Association of Insurance CommissionersThe National Association of Insurance Commissioners is an Internal Revenue Code Section 501 non-profit organization which seeks to organize the regulatory and supervisory efforts of the various state insurance commissioners from around the United States. The NAIC was formed in 1871. Its current...
- National Conference of Insurance Legislators
- Consumer Federation of AmericaConsumer Federation of AmericaThe Consumer Federation of America is a non-profit organization founded in 1968 to advance consumer interests through research, education and advocacy....