Battle brewing over move to establish federal standards forstate regulation

By arthur d. postal

washington

A big battle is brewing between the National Association ofInsurance Commissioners and the leadership of the House FinancialServices Committee over efforts in Congress to draft federalregulatory standards legislation.

NAIC officials say they are cooperating with the committee'sleadership and staff in the drafting of the State Modernization andRegulatory Transparency Act–better known as SMART. However, thecommittee's Republican leadership apparently perceives that theNAIC is seeking to delay action on the bill to retain the currentregulatory scheme, which emphasizes state oversight.

The issue is pressing because the committee has set a July 15target date for action on the bill–and, apparently, the bill hasbipartisan support.

In a letter dated May 16 to the NAIC leadership, Rep. RichardBaker, R-La., who chairs the panel's Capital Markets Subcommittee,said that since all the NAIC could provide the committee wascategorical denunciation of the committee's own work product on theissue, he didn't think it would serve any purpose for theleadership to meet with the regulator group until members submittedtheir own proposal for reform.

One congressional source called the letter “very strong.” Thesource, who opposes the legislation in principle, nevertheless saidthat for the committee to put its thoughts on paper in suchlanguage is “extraordinary and reflects the extreme disappointmentof the committee at the recent actions of the NAIC in opposingmodernization legislation.”

However, in a telephone interview, Diane Koken, president of theNAIC and Pennsylvania's insurance commissioner, denied any lack ofcooperation. “We are not attempting to delay anything,” she said.“We welcome opportunities to meet with committee officials andassist in any way.”

Ms. Koken said the NAIC leadership is aware of the July 15target date for action.

The difficulty between the committee and NAIC leadership stemsfrom the fact that state insurance commissioners–and probablygovernors and state legislators as well–believe the committee isseeking to reduce state authority.

In her comments to NU, Ms. Koken noted that her members supportregulatory “modernization”–that is, compacts and other mechanismsinitiated by the states that would create oversight uniformity.

By contrast, the House committee is drafting legislation thatwould establish federal standards for state regulation. This keydifference was voiced in a May 9 letter signed by Ms. Koken thattriggered Rep. Baker's strong response.

“Our major concerns with the current draft SMART Act arecentered on the organizational and legal structure it would employto achieve the modernization goals we all share,” she wrote.

“Consequently, NAIC members believe we provide constructiveassistance to you and your staff when we point out basicconstitutional and operational problems associated with the SMARTAct that would undermine its stated purposes and negate importantstate consumer protection laws,” she added.

“We also believe it is constructive to tell you upfront thatcertain SMART Act provisions, such as mandatory rate de-regulation,would be harmful to both consumers and industry,” she wrote.

Rep. Baker's staff would not comment on the letter, nor wouldRep. Mike Oxley, R-Ohio, who chairs the full Committee.

The letter from Rep. Baker implied that the NAIC leadership isseeking to delay indefinitely congressional action on insurancemodernization legislation by not participating in the drafting ofSMART.

The letter sought to delay further a meeting between Ms. Kokenand Rep. Baker that had been scheduled originally for late April,and would have been a follow-up to a letter in which NAIC officialsoutlined specific criticisms of drafts of SMART. (See accompanyinginfographic.)

The meeting originally had been scheduled for April 28, and Ms.Koken's May 9 letter sought further delay. It followed the decisionof the NAIC to send a letter on April 22 “transmitting the NAIC's35 pages of objections to virtually all aspects of the proposedSMART Act,” which “makes quite clear the organization's position onmeaningful reform,” Rep. Baker said in his letter.

However, Ms. Koken said last week that the original meeting “hadto be rescheduled for reasons not related to the NAIC.”

Sen. Baker's Reaction

The one-page letter from Rep. Baker told the NAIC: “Please knowthat I consider myself fully apprised of the organization'sthoughts on the matter, and I do not believe a meeting is requiredfor me to further familiarize myself with your objections.”

Rep. Baker added he thought it “important for the NAIC to take aleadership role in the current reform effort.

“Accordingly,” he went on, “I invite you to submit for myconsideration a meaningful, enforceable and effective proposal forfederal legislative action that will achieve the necessaryreform.”

Until the NAIC offers “an alternative proposal as I haverequested,” Rep. Baker added, “I do not believe it advisable torevisit your prior correspondence and request. Please forward yourrecommendations at your leisure and be assured of my promptreply.”

“We are always willing to meet with the chairman–and recentlymet with Chairman Oxley,” Ms. Koken said. “We also hope to meetwith Chairman Baker at some point.”

Moreover, she added, “NAIC staff is engaged in discussions andproviding input to the Financial Services Committee.”

Infographic: with Capitol Hill shot

Flag: SMART Objections

Head: What Are Regulators' Beefs?

The following is a summary of key findings by the SMART ActReview Teams created by the NAIC to review provisions of theproposed bill to set federal standards for state insuranceregulation.

o “…By establishing federally mandated standards and preemptingstate laws…consumers would be denied the benefits of importantstate consumer protection laws and regulations.

o “The bill would create regulatory confusion in insurancemarkets by subjecting state regulatory authority to second-guessingand possible interference by a new federal entity…

o “The bill would remove the ability for independent judgmentand action by state regulators…in such important areas assupervising rates and conducting market conduct exams.

o “Most specified time limits for states to implement the SMARTAct's requirements are unrealistically short….

o “The NAIC welcomes federal legislation that would permit equalaccess by all state insurance regulators to the FBI's criminaldatabase, enable sharing of confidential regulatory information,and grant states equal receivership powers with the federalgovernment.