The problems of the U.S. Department of Homeland Security should serve as a cautionary tale a federal takeover of insurance regulation, according to a new white paper.

Mark Boozell

“The resulting mass [of the DHS] remains a largely segregated and redundant organization with lingering loyalties to individual agency missions and jurisdictions,” writes Mark Boozell, former Illinois insurance commissioner, in a white paper for the Professional Insurance Agents Insurance Foundation.

The paper was written to “assess the current status of insurance regulation and evaluate the range of potential reforms” being discussed by the Obama Administration and Congress. The possibilities before Congress include an optional federal charter, giving insurers and agents a one-stop shop for product registration and licensing, and the complete federalization of insurance regulation.

For federal regulation of insurance to occur, Boozell suggests, a “broad and diverse” collection of federal agencies would have to somehow be united. Those agencies that would have to join forces include the Office of the Comptroller of the Currency, the Commodities Futures Trading Commission, the Securities and Exchange Commission, the Health and Human Services Department, the Department of Labor, the National Flood Insurance Program and the Federal Crop Insurance Program, along with state insurance departments and the National Association of Insurance Commissioners.

States, working with federal entities as well as the alliance of state insurance commissioners, the NAIC, already have a system in place to handle these requirements, Boozell notes.

“Many federal agencies and departments already work with and depend upon the safety net of well-organized, well-staffed and institutionally informed regulators at the state level to help coordinate this federal playing field,” the white paper said. “Insurance companies find their regulatory environment relatively consistent and properly managed.”

Boozell suggests “serious red flags” should be evident for the public policy process and that “the unnecessary elevation of responsibilities handled historically well by state jurisdiction goes against the basic fundamentals of American federalism.”

Boozell adds, “Put more simply: the states are doing the job and the feds already have plenty to do.”

The former insurance commissioner (1995-1998) and chief of staff to Illinois Gov. Jim Edgar, a Republican, says the DHS’s problems could easily parallel what might happen if insurance regulation were federalized.

In the wake of Sept. 11, 2001, the DHS was formed to serve as a clearinghouse and central location for government information that could affect national security. Boozell writes that the “DHS combined existing federal agencies previously housed within other cabinet-level agencies and merged those entities together [sic] with vast new authority designed to facilitate better collaboration to secure the American homeland.”

However, inter-departmental and inter-agency struggles, as well as frustration for state and local law enforcement officers as federal personnel, initiatives and mandates remain in flux, have hurt the agency’s effectiveness, according to the white paper.

“The country is kept safe, but arguably in spite of the new system rather than because of it,” Boozell writes.

He acknowledges that the state regulation is “far from a perfect system,” but says, “the concept of the state regulation of the insurance industry is premised upon the theory of keeping the regulatory environment at the lowest governmental entity possible.”