Congress Panel Schedules Insurance Law Changes

By Jim Connolly

NU Online News Service, March 14, 12:22 p.m. EST, SaltLake City, Utah?The head of a key Congressional committeehas notified state regulators the panel plans to spend the comingthree months mapping changes for the insurance industry, sourcessaid.[@@]

The letter from Rep. Michael Oxley, R-Ohio, chairman of theFinancial Services Committee, was sent to the National Associationof Insurance Commissioners, which is meeting here this week to doits own work on streamlining state regulation.

Rep. Oxley's letter dealing with NAIC progress in implementingchanges, according to three sources, was sent with a timetable forcommittee work on the State Modernization and RegulatoryTransparency Act. Mr. Oxley's communication could be discussedduring a Commissioners Roundtable here at the spring NAICmeeting.

The timetable of work on SMART in the House Financial ServicesCommittee would take a week-by-week approach, according to theletter. Starting April 6 through a final draft release of April 12,SMART Titles II and III, addressing insurer licensing and surpluslines, would be fine-tuned.

Work on other titles would be completed as follows: Title X andXIV, Anti-fraud and financial surveillance, from April 13-19; TitleIX and XIII, reinsurance and receivership, from April 20-26; TitleV and XI, life insurance and viaticals, from April 27-May 3; TitleII and XII, market conduct and miscellaneous insurance, May 4-10;Title VI and VII, partnership and producer licensing, May 18-24;and, Title XVI, competitive markets, May 25-June 7.

Diane Koken, Pennsylvania insurance commissioner and NAICpresident, declined to comment on whether NAIC had received aletter.

State insurance regulators are working on a variety of projects,including market conduct reforms, an interstate compact for asingle point of product filing, and inclusion of components of thefederal Sarbanes-Oxley Act of 2002 for corporate reporting andauditing into an NAIC Model Audit Rule.

The proposed amendments to the NAIC Model Audit Rule haveopposition from state legislators and trade groups. The NationalConference of Insurance Legislators, Troy, N.Y., has voicedobjection on both substantive and procedural grounds.

In a March 10 letter NCOIL's president, Texas Rep. Craig Eiland,D-Galveston, said that nonpublic insurers are already held torigorous state solvency requirements and additional reportingrequirements will add to the cost of doing business.

NCOIL also questioned the use of revisions to the NAIC AnnualStatement instructions. In the letter, Rep. Eiland said that thoserevisions are automatically incorporated into the laws of statesthat integrate the instructions into their state law by referencethrough either statute or regulation.

Two trade groups?the National Association of Mutual InsuranceCompanies, Indianapolis, and the Property Casualty InsurersAssociation of America, Des Plaines, Ill.?are urging the NAIC toconsider both the need for implementation of changes to the modelaudit rule and the addition of new costs without a clearunderstanding of the additional benefits that would be accrued.

The National Alliance of Life Companies, Rosemont, Ill., hasalso expressed a concern that the benefits postulated justify thecosts.

In response, Doug Stolte, chair of the NAIC/AICPA working group,said that given the number of insolvencies and guarantee fundassessments, there was a need for stronger internal managementcontrols.

Mr. Stolte cited a figure provided by the Property CasualtyInsurers Association of America (PCI) that the cost of implementingSarbanes-Oxley requirements would be one-tenth of a percent of anentity's revenue for the year. For a policyholder who has beenthrough insolvency, he said, that cost might be worth havinginsurance with a strong company.

And, he added, if insurers can get a premium tax credit forguarantee fund assessments, then state tax payers and policyholdersare really paying for these insolvencies.

Of the NCOIL letter, Mr. Stolte said that the NAIC was not givena chance to state its case for better reporting of internalcontrols during the recent discussion at the NCOIL spring meeting.Legislators heard one side of the story, he noted.

Mr. Stolte said the work could always be put in a statute whichwould be less flexible and less to the liking of insurers.

Legislators joined a number of trade groups in opposing effortsto change the Model Audit Rule of the National Association ofInsurance Commissioners. And, in response, regulators working onthe project reasserted the need for adapting best practices fromthe Sarbanes-Oxley Act of 2002 to provide another solvency tool forregulators.