Rep. Ed Royce (R-Calif.), a senior Member of the House Financial Services Committee, today introduced legislation that would create an optional federal charter regulatory regime for life and property/casualty insurance providers.
The National Insurance Act of 2006, H.R. 6225, is a companion bill to S.2509, which was authored by Sens. John Sununu (R-N.H.) and Tim Johnson (D-S.D.) in April.
“I applaud the efforts and leadership of Senators Sununu and Johnson,” Royce said. “I believe the time has come for both Houses of Congress to address the inefficiencies in the insurance marketplace.”
The National Insurance Act would create a federal regulatory agency within the Treasury Department, however, Royce noted it would leave the current state regulatory system in place.
“An insurance provider could choose to be regulated by the 50 states or by the Office of National Insurance,” he said. “This concept is not new — the banking system has lived under such a framework for much of our nation’s history.”
The U.S. Treasury, academic experts, and market participants recently testified that the state-based system of regulation needs modernization. Uniformity of regulation, which is lacking at state level, would be achieved with federal oversight. One set of rules would enable insurance providers to reduce compliance costs and reduce barriers to market entry.
“The significant expense of complying with the over 50 jurisdictions has led to higher costs and less participation in the insurance sector,” Royce added. “This legislation would lead to more transparency and competition. Consumers would be the direct beneficiary of the increased competition through lower premiums and more innovative products.”
H.R. 6225 is nearly identical to S.2509 (Sununu-Johnson); however, Royce’s bill also includes a provision to create a Prompt Corrective Action (PCA) provision. Congress instituted PCA for the banking system in 1991 to enhance the safety and soundness of the banking industry.
“In addition to the strong provisions in the Senate bill, I believe that PCA could further strengthen the safety and soundness of the insurance sector,” said Royce.
“Today’s introduction is the first step of a long-term effort to create a more efficient financial services sector. I am encouraged that other leaders in Congress, in particular Paul Kanjorski, have expressed interest in exploring the benefits of optional federal charter legislation,” said Royce.
Congressman Paul E. Kanjorski (D-Pa.), the most senior Democrat on the House subcommittee overseeing the insurance industry added, “With this bill, Congressman Royce has advanced the legislative debate about creating an optional federal charter. Going forward, I will continue to work with him to modernize the structure of insurance regulation in a way that protects consumers and reflects the realities of today’s financial system. I also encourage all interested parties to offer constructive ideas on how to improve this initial product.”
Source: Rep. Ed Royce (R-Calif.)
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