The CEO of Allstate Tom Wilson argued in a New York Times op-ed "Regulate Me, Please." Wilson asks for a federal insurance regulator to keep his industry in line. What Allstate's chief executive isn't saying is that Allstate and its cohorts have been seeking an escape from strong state insurance regulation for more than a decade and they think the AIG disaster gives them cover.
What Allstate wants is an "optional federal charter," which will allow it to choose a federal insurance regulator rather than have to deal with insurance regulation in each of the states. Why? In California, my consumer group forced Allstate to lower rates by $500 million for its California homeowners and auto insurance customers last year under strong state insurance regulations that prohibit excessive rates. Similarly, in Florida, Allstate has drawn aggressive regulatory oversight in response to the company's anti-consumer practices.
Federally regulated insurance company would be exempted from state rate regulation under legislation introduced last week in Congress by Rep. Bean (D-IL) and endorsed by Allstate on April 2, 2009. Bean has received at least $26,550 in campaign contributions from Allstate during the past four years.
Under California's tough Prop 103 law, Allstate homeowners' insurance customers saved about $250 a year each with the 2008 order for the company to lower its premiums by 28.5%. Nearly 2 million motorists with Allstate auto insurance saw their premiums drop by an average $133 per car, or 15.9%.
Approved by voters in 1988, Proposition 103 enacted the toughest state insurance regulation in the nation and has protected consumers from insurance company rate gouging, illegal surcharges and other abusive practices. The law has long been a target for insurance companies and their Congressional allies who are now using the financial crisis as cover to begin the process of federal preemption.
Forget the fact that the federal Office of Thrift Supervision was supposed to oversee AIG's credit default swaps and has acknowledged its failure to Congress. Meanwhile state regulators have prevented a single policyholder from seeing a loss of their policy or claims payment during the economic crisis because of insufficient reserves.
Fortunately Speaker Nancy Pelosi hails from the model of strong state insurance regulation. An April 2008 state-by-state study of auto insurance regulation, by the Consumer Federation of America, found that California's law limiting the rates insurers can charge has saved motorists $62 billion since Proposition 103's passage. The report named California both one of the most competitive and one of the most profitable markets in the country, with the slowest-growing automobile insurance premiums in the nation. All these gains could be lost for consumers if insurers are able to opt out of strong state regulation for a lower federal standard, or if federal standards preempt state oversight entirely.
Why worry if Nancy Pelosi is in the corner of strong state regulation? Treasury Secretary Tim Geithner recently told Congress he thought "there was a good case for introducing an optional federal charter." Stronger voices for the consumer in the White House should prevail, but there's no question the insurance industry is stepping up its wolf-in-sheep's-clothes campaign for "regulation." If the industry were to succeed, its fraud would be even greater than AIG's and politicians would pay the price come next election as insurance premiums started to climb again. Let's hope the political ambition of elected leaders trumps Allstate's.