The American Bankers Association Insurance Association has proposed the legislation that would effectively create two new federal charters – one for insurance companies and a second for insurance agencies – and a new bureau within the Department of the Treasury to regulate the two new types of entities.
In a joint letter to Michael G. Oxley, chairman of the House Financial Services Committee, the Independent Insurance Agents of America and the National Association of Insurance and Financial Advisors said they oppose the legislation because all state laws and regulations would be preempted by the draft Act and would thus be inapplicable to national insurance companies and agencies unless the draft Act or the National Insurance Commissioner specifically required compliance with a specific set of state requirements.
The letter continues, saying:
“The National Bank Act does not even purport to preempt the application of state laws to national banks to this extent. IIAA and NAIFA believe that the ABAIA proposed draft Act should be rejected for many reasons, but two are particularly noteworthy. First, under the ABAIA proposal, a new federal bureaucracy would be created to regulate the business of insurance. This flies in the face of the GLBA “functional regulation” mandate under which the regulation of the business of insurance was specifically left to the States, which have essentially been the sole regulators of the business since its inception. GLBA Section 104(a), for example, specifically preserves the McCarran-Ferguson Act, which affirmatively declares that the insurance activities of all of those who engage in the “business of insurance” – including national banks – shall be regulated by the States.GLBA Section 301 also reiterates this “functional regulation” mandate.
Second, the ABAIA has characterized its proposal as an “optional federal charter” and, indeed, obtaining a federal charter would be wholly optional for insurers under the draft Act. Any insurance agency that wants to sell a federally-chartered insurance company’s products, however, would be required to be licensed as a national insurance agency; the proposal is thus not an “optional federal charter” for insurance agencies.
This would not only create an incredibly unfair – and expensive – requisite federal licensing obligation for most insurance agencies, but it also is wholly inappropriate in light of the GLBA’s express resolution of the agent licensing issue with the inclusion of the Title III multi-state licensing reform provisions (commonly referred to as the “National Association of Registered Agents and Brokers” provisions, or “NARAB”).
Although IIAA and NAIFA are thus staunchly opposed to the ABAIA proposal, we would be supportive of a properly crafted proposal that creates strong incentives for the States to create a national licensing and oversight system for insurers. Such an approach would enable insurers to receive the benefits of a more harmonized and streamlined regulatory structure without displacing the extensive state insurance regulatory system that has been in place for over 150 years.
Because such an approach would modify rather than displace the existing state regulatory networks, it also would be far less expensive to implement and it would not require the creation of a federal guaranty fund that would place United States Treasury funds at risk.”
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