ACLI Highlights of the Study
An optional federal charter (OFC) system for the insurance industry would have little or no impact on state economies. Moreover, any change is more likely to be positive rather than negative.
Indeed, it is difficult to envision a situation in which a state would suffer substantial negative economic effects due to an OFC.
Moreover, the broader economic effects of an OFC could be positive. To the extent an OFC increases the competitiveness and efficiency of life insurers, the sale of their products and corresponding markets could expand. The resulting increase in life insurance coverage and savings could be considered a positive development. It is also possible that there would be a net gain in savings resulting from the growth of permanent life insurance products, which should have a beneficial effect on state economies in terms of increasing the savings and wealth of their residents. Purchases of and investments in annuities will likely experience even greater growth.
Holding everything else constant, an OFC should have a positive impact on insurers, insurance company employment and employment of insurance agents, although these benefits may be offset somewhat if there is an increase in merger activity. Even with an overall increase in industry employment, employment changes could vary across states, with some states gaining workers and others losing workers. However, the negative effects are likely to be confined to a few states, if any, and the impact likely to be limited.
While OFC preserves state premium and retaliatory taxes, state insurance departments would likely experience a decline in regulation-generated revenues, such as fees, if a large number of insurers opt for federal regulation. But there would also likely be a decline in state insurance regulatory expenses since there would be fewer state-regulated insurers. The number of state insurance department employees could fall as a result.
But any change is likely to be minor. Despite the importance of the insurance industry, it still accounts for a relatively small fraction of the economic activity in states. This limits the impact of regulatory change.
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