Commentary: SMART for Regulation’

By | September 14, 2004

Lobbyists for the American Insurance Association recently made their case for federal over state regulation of insurance before the House Committee on Financial Services by presenting a list that included the following:

• In Nevada, insurance companies must use pink paper when filing the documentation page for a filing fee.
• Ohio does not allow any paper clips or staples in filings.
• Kentucky requires that the insurance company’s filing fee be stapled — and in a certain way or the department of insurance can return the filing.
• Wisconsin requires that companies put slashes through the zeroes on their policy form transmittal. This means going over the computer-generated form by hand.
• Arizona requires that companies spell out all insurance company names on state forms. No abbreviations allowed.
• Indiana will not accept filings with more than one insurance company named in the cover letter.
• Iowa and Utah require that filing documents be assembled in a prescribed order or the filing will be returned to the company.

While they must have been impressed by the minutiae (there are some important requirements, too), House Financial Services Committee Chairman Mike Oxley, R-Ohio, and Capital Markets Subcommittee Chairman Richard Baker, R-La, probably slightly disappointed the AIA and other big company lobbyists with the first draft of their new plan to modernize insurance regulation.

The SMART legislation (The State Modernization and Regulatory Transparency Act) does not claim to introduce federal regulation as AIA and others had hoped but it doesn’t leave much for states to do either.

SMART would give all states two years to adopt competitive rating for most lines of insurance. The measure takes direct aim at the kind of picky details the AIA unearthed. It gives states up to three years to improve the efficiency and uniformity in their market exams, financial surveillance, licensing, product approvals and other areas.

Oh, it does also say that states may continue to regulate the use of all underwriting or rating factors or classifications including prohibiting the use of race, religion or other criteria But that’s about all it leaves to the states.

It’s hard to argue with the plan’s objectives: uniformity and efficiency in state regulation; competitive pricing to benefit consumers; streamlined licensing procedures; faster product approvals. The debate is over how best to achieve these objectives.

Some will argue that the bill protects the authority of states. Others will argue it decimates that authority. Everyone should ask, where is the money to help states meet these federal “minimum” requirements supposed to come from?

The draft proposal is just that, a draft proposal. Nothing is cast in concrete. But at first reading, it feels heavy enough to sink state regulation.

This Editor’s Note commentary first ran in the Sept. 6, 2004 edition of Insurance Journal East.

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