Uniformity and Efficiency in Insurance Regulation: Consolidation and Outsourcing of Regulatory Activities at the State Level

An intense debate over the choice of regulatory authority, e.g., state vs. federal regulation, continues in the U.S. The debate not only exhibits the diversity of political and economic interests of various groups such as the federal government, state governments and the NAIC, insurance companies and their associations, and policyholders and the general public. It also reflects the need of all parties of interest to align U.S. regulation with the changes in the financial services market and to preserve competitiveness of U.S. insurance companies in the domestic and foreign markets. This study summarizes the general directions of regulatory reforms internationally, reexamines the political history of insurance regulation in the U.S. to identify the motives behind each call for reform, and evaluates the current state-based approaches in comparison to proposed alternatives. The paper concludes that the current state-based system is preferred to any other forms of regulation in the U.S., provided that state regulators unify their activities and improve regulatory efficiency and that the NAIC positions itself as a true association of member regulators and is financially supported primarily by the members.