House Subcommittee Moves Key Federal Insurance Regulation Bills

July 10, 2008

In a big week for insurance lobbyists, a key House subcommittee advanced three major insurance regulatory measures.

The U.S. House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises marked up bills creating a federal office of insurance information, creating a national licensing registry for insurance producers and expanding risk retention groups from commercial liability into commercial property coverage.

Federal Insurance Office
HR 5840, the Insurance Information Act of 2008, would establish an Office of Insurance Information within the U.S. Department of the Treasury. Additionally, the bill has clearly defined and strictly limited preemptive powers applicable only if state laws conflict with United States international trade agreements.

The National Association of Insurance Commissioners (NAIC) offered its conditional support of the measure, provided that the definition and scope of agreements are tightened to enhance the ability of insurers and reinsurers domiciled in any of the United States or territories to expand access to foreign markets, while maintaining consumer protections domestically.

“Some members of Congress and industry lobbyists have made claims that this bill is the first step to an ‘optional federal charter’ for insurance,” said NAIC President and Kansas Insurance Commissioner Sandy Praeger. “Every insurance commissioner strongly believes that an OFC is the worst possible public policy choice for insurance. An OFC would decimate consumer protections via arbitrage, would damage the world’s most competitive insurance market and would result in a massive expansion of the federal government. The NAIC unequivocally opposes any attempts to use this bill as a vehicle for such a misguided policy.”

Marc Racicot, president, American Insurance Association (AIA), which as been a longtime supporter of an OFC, applauded the House subcommittee for advancing HR 5840.

“Today’s vote by the House Subcommittee on Capitol Markets is a recognition that an immediate need exists for federal expertise regarding the important national and international insurance trends in today’s rapidly changing and globalized marketplace,” Racicot stated. “This office will help the U.S. Treasury analyze the important societal role that insurance plays in the domestic economy and will provide urgently needed leadership by the U.S. in international insurance regulatory policy making and agreements.”

Racicot claims an Office of Insurance Information would be a valuable tool that would enable the U.S. to speak with one voice on important insurance matters and for establishing U.S. leadership globally on developing international standards for insurance regulation.

The Property Casualty Insurance Association of America has not yet taken a position on HR 5840, but believes several considerations must be taken into account, including: avoiding unnecessary and expensive data collection requirements; preserving confidentiality of private data; and defining and limiting federal preemptive authority over state laws.

“We advocate that any preemption of state laws, if necessary, be accomplished by legislative action and not simply left to be developed through an administrative procedure,” said David A. Sampson, PCI’s president and CEO. “The legislative process is the most appropriate way of answering public policy questions, such as how to harmonize this proposal with existing laws like the McCarran-Ferguson Act.”

Nonresident Licensing
Another piece of legislation to make headway this week is a bill of particular importance to agents and brokers. The bipartisan HR 5611, the National Association of Registered Agents and Brokers Reform Act of 2008 (NARAB II), would create a national licensing registry for insurance producers while preserving the rights of states to supervise and discipline insurance agents and brokers.

This legislation modifies the original NARAB provisions of the Gramm-Leach-Bliley Act to immediately establish NARAB as a private, non-profit entity managed by a board composed of insurance regulators and marketplace representatives. The NARAB board created by this legislation would not be part of, or report to, any federal agency and would not have any federal regulatory power.

“The Big ‘I’ has long supported the use of targeted federal legislation to reform the state system of insurance regulation,” says Robert Rusbuldt, president and CEO of the Independent Insurance Agents & Brokers of America, or Big “I”. “The most serious regulatory challenges facing our members are the redundant, costly and contradictory requirements that arise when they seek licenses on a multi-state basis. The NARAB Reform Act solves these problems through targeted reform and modernization of nonresident agent and broker licensing without affecting resident licensing.”

The Big “I” is an advocate for the state system of insurance regulation and continues to oppose federal regulation, optional or otherwise. However, the Big “I” believes that the state system cannot appropriately and effectively address certain problems on its own and feels that there is a role for Congress to play in helping to modernize state regulation and make it more efficient.

“As indicated by the industry and congressional support for these bills and the subcommittee’s action today, targeted reform is the most viable option for insurance regulatory reform. When enacted, the NARAB bill will result in a more efficient and effective regulatory system, which is good for consumers,” says Charles E. Symington Jr., Big “I” senior vice president of government affairs.

Insurers also expressed support for HR 5611, but claim some terms within the legislation need further definition.

“PCI supports NARAB II in principle,” Sampson said. “We look forward to working with the subcommittee to clarify and improve this good legislation.”

The nation’s insurance regulators say that while they support the latest version of NARAB II, this is a unique case and should not be misinterpreted to support any further preemption of state laws.

“Insurance regulatory reform should always begin and end with the states,” Praeger said. “The NAIC recognizes that streamlined nonresident producer licensing is an important goal, and we believe that the targeted approach taken by the manager’s amendment to H.R. 5611 achieves that objective without compromising State consumer protections.”

Expanding LRRA
During its mark-up session, the House panel also made several technical corrections to the “Increasing Insurance Coverage Options for Consumers Act of 2008” (HR 5792) originally introduced in April. The bill expands the Liability Risk Retention Act (LRRA) to allow risk retention groups (RRGs) to write commercial property insurance, thereby expanding the self-insurance/ART marketplace and providing additional insurance options for commercial property owners.

In addition to fine tuning existing legislative language, a new provision was added to HR 5792 that would require the Government Accountability Office (GAO) to examine whether there is unlawful interference in the operation of RRGs by non-domiciliary regulators.

The Self-Insurance Institute of America Inc. (SIIA) welcomes such GAO oversight, said SIIA President Dick Goff. “We believe that the ‘single regulator’ structure as envisioned by the LRRA is being improperly compromised by the actions of some non-domiciliary regulators. These actions have obviously had a negative impact within the RRG marketplace,” he said.

Both HR 5840 and HR 5792 were fast-tracked to go to the floor of the House of Representatives for consideration without action by the Financial Services Committee. HR 5611 was ordered to the full Committee, with a favorable recommendation.

Source: IIABA, PCI, NAIC, SIIA, AIA

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