New York Superintendent of Insurance Greg Serio, speaking on behalf of the nation’s state insurance commissioners, will tell a Senate subcommittee today that state regulators play a critical role in guaranteeing a fair and healthy insurance system even though what they do does not always garner the headlines that the country’s attorneys general get.
Serio was scheduled to speak today on behalf of the National Association of Insurance Commissioners before the Senate Governmental Affairs Subcommittee on Financial Management, the Budget, and International Security, which is opening hearings into insurance brokerage practices and the adequacy of the current insurance regulatory system.
Addressing both the current brokerage investigations and the viability of a state-based system of regulation in his testimony, Serio will tell federal lawmakers the states have a two-pronged approach of law enforcement under attorneys general and regulation under commissioners. He stresses that state insurance departments are not law enforcement agencies whole attorneys general are.
“State attorneys general are investigating possible violations of civil and criminal law using their law enforcement powers to obtain information from industry sources by subpoena, file civil lawsuits, and seek criminal indictments and convictions. Due to the very serious consequences associated with charges of illegality and wrongdoing made by law enforcement officials – as well as the severity of potential penalties for persons and firms found guilty – the actions of attorneys general in states such as New York and Connecticut have attracted a great deal of media attention,” Serio notes in his testimony.
Meanwhile, he adds, “state insurance regulators are playing a critical role by working jointly with state law enforcement investigations, by developing the facts, and by sharing the information and expertise we have gained through supervising daily aspects of the insurance business. We also recognize that our primary responsibility is to protect the stability of insurance products and markets in our home states by monitoring the solvency of insurers and assuring that consumers are treated fairly when they purchase life, health, and property-casualty insurance for their families, homes, and automobiles. As a result, state regulators routinely monitor aspects of the insurance business that do not attract media attention, but which can have an enormous impact on the two major obligations insurers owe to their customers – issuing sound policies and paying claims on time.”
“‘No news is good new’ for insurance regulators because it means the marketplace is functioning without significant problems and that our corrective efforts, when necessary, are working behind the scenes to keep insurance markets stable.”
He reminds lawmakers that the primary responsibility of insurance commissioners is “to protect the innocent” who have bought insurance products or who have been treated unfairly in an insurance transaction. He warns that “ill-informed actions by business institutions, government officials, and consumers can cause a ‘run on the ban’ that undermines or destroys the very products that people want to save. We are committed to obtaining the facts and acting quickly in response to any findings.”
Serio planned to update the Senate panel on collective regulatory action being taken by the NAIC, which appointed a task force of 13 members. This task force is pursuing three avenues: drafting a model act for disclosure of broker’s compensation; developing a uniform inquiry template for states to sue in querying domestic insurers and top brokers; and launching an online fraud reporting mechanism to accept anonymous tips of possible wrongdoing.
Serio suggests that the coordinated NAIC effort should help expedite the process of receiving and collecting information needed for inquiries into brokerage practices. “Insurance brokers provide a vital service for many customers, and we will not help those customers if the regulatory process unduly hampers the ability of brokers to function efficiently,” he
He will also use the occasion to counter arguments from some who think the current broker investigation raises the question whether federal action or involvement in insurance regulation are needed.
“State regulators believe the answer to that question is ‘no.’ The state regulatory system is inherently strong when it comes to protecting consumers because we understand local needs and market conditions. However, we recognize a need to make the system more uniform, reciprocal, and efficient. Consequently, state regulators have agreed upon a specific modernization plan that is now being implemented,” he explains.
He urges Congress to be “very careful” in considering any potential federal legislation to achieve modernization of insurance legislation.
“Even well-intended and seemingly benign federal legislation can have a substantial adverse impact on existing state laws and regulations designed to protect insurance consumers. Because federal law preempts conflicting state laws under the United States Constitution, hastily drafted or vague federal laws can easily undermine or negate important state legal protections for American consumers,” Serio warns.
The NAIC was one of several industry groups expected to testify during the Senate subcommittee oversight hearings.
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