Regulatory Overkill or Politics as Usual?
Insurance Networking News, December 2007
It's no secret that the insurance industry takes a relatively dire view of regulatory compliance. The Sarbanes-Oxley Act of 2002 (SOX) is reported to have cost public companies across all verticals $35 billion last year. If the popular press is correct, that equates to 30,000 man-hours per company, per year, to comply. Although it's a given that promoting accurate bookkeeping (not cooked books) is simply best practice, the only companies seeming to benefit from compliance efforts are the pool of compliance-related technology solution providers.
Regulatory compliance reaches far beyond SOX, however. From ongoing talks of a national catastrophe fund, to the recent resurfacing of the McCarran Ferguson Anti-Trust Law, to the continued debate over an Optional Federal Charter and the recent passage of an extension to the Terrorism Risk Insurance Act, the industry is, in the words of Ernst "Ernie" Csiszar, "at a crossroads."
Csiszar, former president of the 1,000-member Property Casualty Insurers Association of America, Des Plaines, Ill., presented his views this fall at the El Segundo, Calif.-based Computer Sciences Corp.'s annual Future Focus meeting in Orlando, Fla.
"[Regulatory compliance] represents a challenge that is politically motivated and resides in Washington D.C.," he told attendees. "And it's focused on the wrong reasons, leading to the wrong types of reforms."
The total cost of regulatory compliance to U.S. companies is $1.14 trillion annually, Csiszar told the audience. "Our entire economy is $13 trillion, which means 10% of our economy is spent on compliance."
When examining the problems that continue to plague the insurance industry, do we have the tendency to problem-solve by promulgating more regulation? Perhaps. According to the Washington-based, free-market think tank Competitive Enterprise Institute (CEI) in 2006, the Federal Register-the daily publication for rules, proposed rules and notices of the federal government-swelled to 74,937 pages, the second-highest level in history (the highest was 2004). The CEI says that 48,000 new rules were issued by the federal government between 1996 and 2006.
Csiszar pointed to what he called "indiscriminate acts" of federal regulation, such as the USDA's efforts at making sure the holes in Grade-A Swiss cheese are consistently between 3/16" and 11/16" and its viscosity tests on ketchup.
"This is a government that doesn't hesitate to come into your boardroom (SOX), your bedroom (same-sex marriage), your bathroom (1.6-gallon "conservation" flush toilets) or your kitchen (FDA trans-fat labeling rules). There is no segment of our lives not subject to the regulatory process, instigated by faceless bureaucrats," he said. "Our economy and industry suffers from overkill."
Ketchup and Swiss cheese aside, is this obstinate "overkill" the result of Washington's faceless bureaucrats? Or is it the result of the insurance industry's own political factions either unwilling or incapable of forming a united front in order to fight the good fight?
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