Last month Sen. John Sununu (R-N.H.) and Sen. Tim Johnson (D-S.D.) reignited the regulation debate when they introduced S. 2509, the National Insurance Act of 2006.The Sununu-Johnson bill would establish an optional federal charter for insurance companies (life, health, and property-casualty), creating a dual system whereby insurers could choose between being regulated by a new federal insurance regulatory authority or continuing to be regulated by state insurance departments.

Producers would also choose between state and federal regulation. With a federal license, the producer could sell, solicit, and negotiate insurance in any state on behalf of federally licensed insurers and state licensed insurers with state regulation of their activities preempted (with some exceptions). Alternatively, if the producer chooses to remain licensed at the state level, it will remain subject to the laws and regulations of the states.

The bill is strongly supported by those associations representing insurers and producers with a national market focus and strongly opposed by those whose members are predominately focused on a single state or region. The banking associations also support it.

No one disputes that the current state insurance regulatory system is simply too unwieldy, anticompetitive, and expensive. It has long needed a major overhaul, and state insurance regulators have made impressive strides toward a more uniform and efficient system. But they will never achieve it as long as there are 50 state legislatures and 50 state regulators around to exert their influence over their state systems.

As much as I hate the thought of creating another federal agency, an optional federal charter makes a lot of sense. We must face the fact that our large insurers are competing not just here, but globally, and they need a regulatory system that is fast and efficient. A dual system seems to work fairly well for the banking industry. Why not allow insurers and brokers the option of a federal charter?

What do you think? Is an optional federal charter a good idea? Or will it result in even more costly and inefficient dual regulation of the industry? [See reader responses.]

Thank you for subscribing to IRMI Update.

Have a great day.

Jack

Jack P. Gibson, CPCU, CRIS, ARM
President
IRMI

Risk Tip

Improve Workplace Safety by Monitoring Drug Abuse—While 75 percent of drug abusers are employed, and 8-10 percent of employees in any organization are likely to abuse drugs, only 4.5 percent are detected. The impact of drug abuse on a corporation is, for the most part, simply not measured. Traditional techniques for managing workplace drug abuse include education, interdiction, assistance, and urine-based preemployment drug testing, which have been only marginally effective at managing drug abuse. While 90 percent of drug testing is done only on a preemployment basis, this technique is little more than an "IQ" test. Since most drugs are detectible for a maximum of 3-4 days, drug abusers simply stop taking drugs for a few days, gain employment, and resume their risky behaviors.

Some organizations are winning the war against drug abuse by adopting alternative approaches, such as on-site oral-based drug screening, which derive the following direct, measured benefits:

50+ percent reduction in on-the-job accidents
Reduced workers compensation premiums
Lower health benefit utilization rates
Higher employee retention rates
30+ percent reductions in inventory shrinkage/employee theft

In addition to oral testing, other interesting alternatives to urine testing such as hair testing have emerged. Drug testing is very easy to implement and legal—if not actually encouraged—in most states. Package programs are available which can be tailored to your firm. Drug testing commonly provides a 100x return on investment. Not bad when you consider that you're likely paying out at least $1 million every year for every 1,000 employees on your payroll due to not have an effective drug free workplace program.

By: Peter Cholakis, Vice President, Marketing
Avitar Inc.
Canton, MA

Suggest a Risk Tip. Send us a practical tip (less than 300 words) for identifying and managing risks, buying insurance, managing claims, or filling gaps in insurance coverages. Submit your tips. We'll acknowledge your contribution as we did for Peter.

What's New in Your IRMI Library

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New Expert Commentary

There are now over 700 risk management and insurance articles on IRMI.com. Below you'll find summaries of some recent additions with links to the articles.

RIMS 2006—A Quiet Calm in Paradise—With few crises brewing, risk managers seem to have little to worry about. IRMI President Jack Gibson reports on the RIMS Conference in Honolulu.
How To Choose a Domicile That Works Best for Your Captive—Michael Mead provides the basic criteria to achieve success when selecting a domicile.
Are Products Advertisements That Give Rise to Advertising Injury Coverage?—If not defined in the policy, courts must ascertain what constitutes "advertising." Steven Rawls explains.
Marketing Considered "Misappropriation of Advertising Ideas"—Kevin Merriman relates a N.Y. case ruling that the marketing of infringing goods may be covered under the policy.
"To Use or Not To Use, That Is the Question"—Sanford Warren says don't use another's logo or trademark without written permission.
California Curtails Unlicensed Contractors' Recovery for Their Work—Marilyn Klinger details a ruling stressing that contractors who enter into contracts to perform work do so at their own peril.
Practical Word Choices for Risk Managers—Matthew Leitch's research shows the importance of stressing "areas of uncertainty" rather than "risk."

Learn What It Takes To Establish a Successful Captive

Are you considering forming a captive, or do you need help structuring or operating a captive? Captive Practices and Procedures will help you understand what it takes to make sure your captive is built to last. This highly recommended book is the latest from Kate Westover, who has set up and managed more than 50 successful captives during her 20-plus years of experience. Learn more and order here.

Professional Liability Market Directory Update

We are in the process of updating our annual Professional Liability Market Directory. The directory listing is provided as a service to our readers and at absolutely no cost to you. If you are a direct source for professional liability coverage (e.g., insurer, managing general agent), you and your firm can have a free listing in the Professional Liability Insurance Market Directory. Simply provide the appropriate information here.

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IRMI Update—Issue #136

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