Final answer:
The major argument for an optional federal charter for insurers is to allow them to charge actuarially fair premiums, avoiding the need for taxpayers or other insurance buyers to subsidize those costs. It would create a more balanced insurance market, preventing companies from avoiding high-risk individuals and providing a more uniform insurance framework.
Step-by-step explanation:
The major argument in favor of an optional federal charter for insurers is that it would address the issue of actuarially fair premiums and prevent other groups from bearing the cost of artificially low insurance premiums. Currently, if insurance companies are forced by regulation to provide coverage at prices below what is actuarially fair, the financial shortfall must be covered either by taxpayers or other insurance buyers, creating an imbalance and potential unfairness in the insurance market.
Mandatory insurance laws, such as those requiring auto or homeowner's insurance, help stabilize the market by ensuring all risk levels contribute to the pool and prices reflect an average of market risk. However, companies still have an incentive to avoid high-risk individuals. An optional federal charter could provide a framework where insurers can offer their services more uniformly without disparate state-by-state mandates and address the balance between risk, cost, and coverage more effectively.