Term life insurance shopping guide - Part 1
By admin on February 24th, 2010Life insurance has always been regulated at the state level in United States. When you bought your “term life insurance policy, it was regulated by the state you purchased the policy in. Now there is increasing momentum to add a federal regulatory body to manage the insurance industry.
Why now?
Although the federal-versus-state regulation debate has been waged for decades, in March 2008, the Treasury announced a proposal to offer insurance companies an Optional Federal Charter (OFC), similar to the banking industry and proposed the creation of a federal Office of National Insurance. Insurance companies, agents, brokers and reinsurers will be able to choose between state regulation and a federal regulatory system. Originally, the Treasury described state regulation as overly cumbersome, making it more costly for insurance companies to develop national products and created complication for U.S. insurance companies operating abroad and for foreign insurance companies in the U.S.
Since March, the financial world has collapsed. The AIG meltdown and the subsequent federal rescue package have turned up the heat for federal oversight. With the passage of the Troubled Asset Relief Program (TARP), the Treasury has $700 billion dollars at its disposal to attempt to stabilize the financial market. Eying access to this money, several insurance companies (The Hartford, Genworth, Lincoln National and Aegon) proposed or are in the process of buying banks to qualify for relief under the plan. There are several reasons why insurance companies find themselves in financial hardship: exposure to losses from credit default swaps; exposure to the Lehman bonds (since bankrupted); the general downturn in the economy; a 40% collapse of the stock market; a frozen credit market and, in the case of Genworth, loses from their mortgage insurance unit.
In addition, President-Elect Barak Obama campaigned on modernizing regulation and providing more oversight for the financial services industry. The insurance industry will be swept by the wave of this financial regulatory transformation. Momentum is undeniably in the direction of a federal regulatory regime taking hold next year.
What are the Outcome for Insurance Companies, Insurance Producers and the Consumer?
The advantage for insurance companies is that the regulation may simplify a complex system. There are excessive costs currently for compliance of state laws. The unnecessary expense
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