Top insurance regulator critical of federal oversight plan

By DANIEL PERSON Chronicle Staff Writer

State Auditor John Morrison on Monday slammed a Bush Administration proposal to create a national regulator for insurance companies, a plan that would allow some insurance companies doing business in Montana to be regulated by the federal government instead of his office.

The state auditor is one of only five partisan, statewide elected positions in Montana. Morrison said Monday that the auditor would be “much less effective in their ability to protect consumers” under the federal proposal.

But Marc Racicot, a popular, former Montana governor and current President of the American Insurance Association, is backing the proposal. Appearing on CNBC Monday, Racicot called the plan “a major milestone.”

The plan is part of a sweeping regulatory reform unveiled by U.S. Treasury Secretary Henry Paulson to bring more stability to the nation’s financial system.

“Providing insurers with the option of a single regulator for insurance will benefit consumers and will be more efficient, effective and rational given the ‘increasing tension’ a state-based regulatory system creates,” Racicot said in a written statement released Monday.

On CNBC, he called the current system of having insurance companies regulated by state governments “archaic” and “burdensome.” He also said it makes American insurance companies uncompetitive on the global scale.

But Morrison said state regulators are doing well, and the federal government has a bad track record when it comes to responsible oversight n citing the current subprime mortgage crisis as an example.

“The Bush Administration must think the only good defense is a good offense,” Morrison said. “I can’t otherwise understand why they would be advancing the old idea” of a federal insurance regulator “at the very moment federal regulation of banking is facing a black eye.”

Morrison, a Democrat who is serving his second term in office, said his office handles 40,000 calls a year from Montanans seeking help with their insurance, and since he was elected to office in 2000 he has secured $40 million in claims for state residents.

“If you had a federal regulator, Montana insurance consumers would have to call some 800 number and talk to some faceless bureaucrat in Washington, D.C.,” he said.

Morrison will not be on the ballot for the auditor’s job this year, because state law limits the officeholder to two terms.

State regulation also puts $70 million a year in premium taxes into state coffers, money that could disappear if the state loses its insurance regulation authority.

If the federal office is created n Congress must pass legislation to do so n the Montana auditor might still have jurisdiction over some aspects of the insurance industry. The proposal unveiled Monday would allow each insurance company to choose its regulating authority, the state or the federal government.

Regulators from other states are lining up against the idea.

Sandy Praeger, Kansas Insurance Commissioner and National Association of Insurance Commissioner president, said the efficiency the plan’s backers are lauding is just another word for less regulation.

“We believe our house is in order,” Praeger said, appearing alongside Racicot on CNBC. “The last thing our customers need are problems with getting a simple claim paid.”

Racicot said the insurance industry would remain heavily regulated.

Federal regulators, he said, would use “the most advanced solvency and risk management tools available, ultimately delivering the highest-level of safety, soundness and consumer protections.”

Daniel Person can be reached at dperson@dailychronicle.com or 582-2665.

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