AIA’s Endorsement of Optional Federal Charter Plan Prompts Flurry of Responses from Associations

In an announcement released July 17, the American Insurance Association (AIA) Board of Directors stated that it has formally endorsed draft legislation that would establish an optional federal chartering structure designed for primary property/casualty insurance companies.

Although the draft does not currently contain provisions for life insurers, reinsurers, agents or brokers, AIA President Robert E. Vagley indicated the possibility of adding such provisions in the future. Vagley explained that today’s insurance operating environment has become “truly global” as a result of technology and trade liberalization. He added that as a result of the enactment of the Gramm-Leach-Bliley Act (GLBA), competition among the banking, securities and insurance industries would continue to increase and expand.

As such, the new draft legislation represents AIA’s vision of a “progressive market-based insurance regulatory model that both levels the playing field for insurers with respect to competitors at home and abroad and provides strong consumer protections.”

On the same day, Ken A. Crerar, president of the Council of Insurance Agents + Brokers, expressed that organization’s support of the AIA’s draft. In part, the organization’s release stated, “The optional federal charter is perhaps the most fundamental and important issue affecting regulation of the insurance industry. We support the AIA without reservation.”

The following day, Kansas Insurance Commissioner Kathleen Sebelius, president of the National Association of Insurance Commissioners (NAIC), issued a far less supportive statement. “The AIA has been a great partner to the NAIC during the past 17 months… NAIC members recognize that change is needed and have embarked on a national drive to bring greater uniformity, uniform application, efficiency and effectiveness to state insurance regulation…Despite the AIA’s actions, our focus will not change nor will we yield our mission of safeguarding consumers across the country, knowing that they are and will continue to be well served by the states.”

Several other trade organizations quickly followed suit, responding to some of the issues raised by the AIA’s announcement.

On July 18, the Alliance of American Insurers fired off its own press release, in which it expressed “strong disagreement” with the AIA’s new stance. Alliance President Rodger S. Lawson stated that the Alliance and its members opposed the opinion that “the federal government would be a more benign regulator or that total preemption is a reasonably obtainable objective.” Lawson commented that the AIA’s position on the federal chartering plan was especially disappointing in light of the fact that the two organizations have historically worked together to improve the state regulatory system. He also expressed hope that the AIA’s move “would not lead to a future abandonment of those efforts.”

Lawson reiterated the Alliance’s strong support of the concept of functional regulation as articulated in GLBA, and added that modernized regulation would be “the best approach to serving the needs of insurers and consumers.”

Following this exchange, a representative for the National Association of Independent Insurers (NAII) expressed that association’s position on the issue of state versus federal insurance regulation. The brief statement noted for the record that the NAII: “supports state regulation of insurance; understands that state regulation must improve and is actively working with state regulators and legislators to enact such improvements; opposes federal encroachment into insurance regulation; believes that Congress must give states ample time to improve state regulation; is carefully studying other options, including the AIA proposal, with an open mind.”

Several days later, the National Association of Mutual Insurance Companies (NAMIC) also weighed in, releasing a statement from its Vice President-Federal Affairs Pamela J. Allen: “The release of the AIA proposal reflects the growing concern in the industry regarding the need to reform the existing state insurance regulatory system. NAMIC continues to support state regulation. NAMIC believes reform of the state system is necessary, deserves immediate action and should be based on principles of consumer protection, free enterprise, regulatory fairness and due process.”

On July 24, AIA held a press briefing on the draft at its Washington, D.C., headquarters. In closing, Vagley called attention to the NAIC’s statement and expressed his appreciation of Commissioner Sebelius’ remarks and understanding that the AIA has worked hard and will continue to work with the commissioners to improve state regulatory systems.

At the same time, the AIA indicated that it would continue working at the federal level to achieve an optional federal regulatory system based on the free market principle.

Topics Carriers Legislation