In recent years, there has been a growing chorus from those both inside and outside the insurance industry calling for the financial sector to abandon state regulation of our business and substitute it with federal regulation. The changes being called for include agent licensing responsibility and full-blown federal oversight -- but the recent fiasco in the mortgage and banking industry should give proponents of such a sea change cause for concern.
Admittedly, there are problems and shortfalls within the current system, but they pale in comparison with the problems that would come with federal regulation.
Our industry's immense contribution and importance to our nation's economy requires that any change this significant be carefully considered. Despite the current shortfalls with state-by-state regulation, consider the federal government's track record when it comes to regulating anything to do with financial and actuarial concerns:
- Social Security: Federal regulators (Congress) have never required that Social Security tax dollars be kept separate from general revenues. The so-called Social Security "trust fund" is not a trust fund at all. Funds paid to the federal government -- ostensibly for Social Security -- are spent to pay for current benefits, as well for other unrelated federal programs. Opinions differ on how long the current "trust fund" (which doesn't even exist) can maintain solvency. Estimates range from 15 to 30 years. And, with more baby boomers retiring, some predictions are even gloomier than that. Moreover, the federal government's dismal record of being able to track and prevent fraud and identity theft using Social Security numbers should be of great concern.
- Medicare: The picture here is even worse. The majority of Americans are now living for 15 or more years after their Medicare payments start. As life expectancies increase, Medicare will begin bleeding massive amounts of red ink. It is generally estimated this will occur by around 2017. In addition to this ticking time bomb, consider the well-documented Medicare fraud that the federal government seems unable, or unwilling, to prevent.
- The mortgage crisis: I don't need to go into any great detail here. Suffice it to say that the two institutions most responsible for our current financial crisis, Freddie Mac and Fannie Mae, are both government-sponsored enterprises (GSEs). Both are creations of the federal government, and even though they are privately owned and -- until recently -- generating profits for their stock holders, they nonetheless enjoy tax exempt status and implied government backing. As recent news has clearly revealed, both institutions were grossly mismanaged.
These three examples should be sobering. Furthermore, with these examples in mind, how could anyone give further authority and power over what is arguably one of the most financially stable industries in the United States, to a government with such a dismal record of oversight and responsibility?
Hopefully, the answer is, we can't.
Rick Williams is president of the R G Williams Insurance Agency in Staunton, VA. He can be reached at 540-886-0204.
