Optional Federal Charter ‘legislation of the worst kind,’ says PIA exec

The National Insurance Act of 2006 would undermine key insurance consumer protections, constrict the availability of insurance, create market instability and prompt a flood of litigation, according to Leonard C. Brevik, executive vice president and CEO of the National Asso-ciation of Professional Insurance Agents.

In a statement in advance of his participation in a panel during the July 22 General Session of the National Conference of Insurance Legislators (NCOIL) meeting in Boston, Brevik commented on PIA’s opposition to S. 2509 by Sens. John Sununu (R-N.H.) and Tim Johnson (D-S.D.) that provides for the creation of an optional federal charter for insurers and the appointment of a federal insurance regulator.

“This legislation is an example of a solution that won’t work being proposed for a problem that doesn’t exist,” said Brevik. “This proposal to establish a duplicative federal insurance regulatory regime is being advanced by a handful of big banks, large securities firms and a few insurance carriers solely as a means for them to expand their market share at the expense of the other participants in our industry. The National Insurance Act of 2006 is special interest legislation of the worst kind.

“It is our firm belief that a federal insurance charter will allow large financial services entities with insurance operations to move in and out of markets–anything from several territories to entire regions of the country–solely at their whim, thereby disrupting markets and diminishing, not enhancing, options for consumers,” Brevik said. “The Sununu-Johnson bill is a prescription for instability and chaos in the insurance marketplace. Our nation’s public policy response to disasters such as Hurricane Katrina must include efforts to encourage market stability and the expansion of access to affordable coverages. A federalized system of regulation would have the opposite effect, supporting instability in markets and constrictions in availability.”

Brevik dismissed arguments put forth by some advocates of optional federal charter that the current system of state-based insurance regulation is broken.

“Any assertion that state-based regulation is not working is just not true,” he said. “It needs further improvement and modernization. As I speak, modernization of the state system is occurring, and with increasing speed.

“But the premise that the current system is not working is wrong. This distortion is purposely being repeated, again and again, in order to induce people, especially key members of Congress, into thinking it is unquestionably true.”

Brevik said the National Association of Insurance Com-missioners (NAIC), aided by the state insurance legislators of NCOIL, is doing an admirable job of bringing about modernization of the state system of insurance regulation. He cited the recent implementation of the NAIC Interstate Insurance ProductRegulation Commission; the NAIC Financial Regulation and Accreditation Standards Program;the NAIC Producer Licensing Model Act (PLMA).

Brevik pointed out that legislation can have unintended consequences.

“The result [of OFC] will be years of market and regulatory confusion that will throw open the floodgates of litigation, benefiting the legal community rather than insurance providers and consumers–a nightmare litigation scenario that federal courts are in no way prepared to handle,” he said.

“Make no mistake about it: those who want a federal regulatory regime set up for their exclusive benefit are not attempting to junk state regulation just to save a few pennies by not having to make extra photocopies of documents for state regulators,” Brevik said. “Their goal is to free themselves from meaningful supervision, allow them to abandon sections of the country at their will for profit, eliminate effective consumer protections and let them decide what insurance regulation, if any, they will permit.”

Source: PIA

Topics Legislation