NU Online News Service, Oct. 26, 3:19 p.m.EDT

WASHINGTON–Any legislation creating a Federal InsuranceOffice will include a strong role for the Treasury Department innegotiating international insurance agreements, the leadership ofthe House Financial Services Committee made clear today.

It came as the leaders of the committee announced that the panelwill delay action on the legislation in order to consult with theTrade Subcommittee of the House Ways and Means Committee, whichapparently seeks to exercise jurisdiction over the legislation.

Statements to that effect by Rep. Barney Frank, D-Mass.,chairman of the committee, and Rep. Paul Kanjorski, D-Pa., chairmanof its Capital Markets Subcommittee, were made against thebackground of strong lobbying by state interests, including theNational Association of Insurance Commissioners and the NationalConference of Insurance Legislators, to limit the authority of thenew agency to preempt state insurance regulators.

Specifically, the provision objected to by supporters of strongstate regulation, like the NAIC, allows the Treasury Department toenter into "international agreements on prudential measures."

But, Rep. Frank said, action on the legislation will take placein a "very short period of time."

He made his comments as the committee began marking up severalpieces of legislation dealing with reform of the financial servicesindustry.

He said the committee has many issues related to financialregulatory reform on its agenda that have overlappingjurisdictions–specifically citing derivatives with the AgricultureCommittee and the Judiciary Committee on resolution authority.

And, he added that he had not had "appropriate conversationswith members of the House Ways and Means Committee about theinternational preemption provisions," and that this was mentionedto him by Rep. Sander Levin, D-Mich., chairman of the Ways andMeans panel's Trade Subcommittee.

He said he is delaying draft work on the bill "to allow theappropriate conversations to take place."

But, he added that in the context of his conversations with Waysand Means, it was very much his intention to adopt legislation thatwill give the FIO the power to effectuate internationalagreements.

Rep. Kanjorski made similar comments. He is the chief sponsor ofH.R. 2609, the Federal Insurance Office Act of 2009.

He said a portion of the bill concerning information gatheringby the new agency is only part of what the bill seeks toaccomplish, and the Obama administration is looking for thecapacity to have equal authority when negotiating internationalagreements. There is presently no federal insurance regulator atthe negotiating table.

"American interests are at a disadvantage under the currentsystem with only a state commissioner at the table; there is aninequality in negotiating," Rep. Kanjorski said.

He added that to have an effective federal representative at thenegotiating table, preemption of the states would be necessary,that this is a significant change, and that "we are moving in thatdirection."

The scope of the preemption authority concerns stateinterests.

In a letter to all members of the House Friday, Therese Vaughn,chief executive officer of the National Association of InsuranceCommissioners, said the latest draft of the legislation constitutes"a significant shift of authority from the states to the federalgovernment," and should be removed.

NCOIL, in a letter released today, said, "We continue todisagree with the necessity for such an office and question itsaccountability and effectiveness."

It said further that "state regulation is successfully guidinginsurers through the current economic downturn."

Moreover, NCOIL officials said, "The office's enhancedpreemptive power and lack of answerability are alarming to stateofficials who have seen the success of checks and balances in thestate system."

It adds that the proposed legislation "permits an FIO–to be ledby an unconfirmed appointee of the secretary–to override existinglaw without meaningful dialogue with the states."

"In fact, as currently drafted, the FIO only must consult thestates prior to requesting insurance data from the privatesector and after a determination that a state law will bepreempted.

"Other consultation with state officials is limited to theextent the director [of the FIO office] determinesappropriate."

The National Association of Professional Insurance Agents alsovoiced support for the state regulators, noting that if the FIObill is passed as written the Financial Services Committee is"poised to take opposite positions on the same issue in the spaceof one week."

Specifically, he said, the committee approved an amendment tolegislation creating a Consumer Financial Protection Agency thatwould make national banks and federally chartered savingsassociations subject to a broad range of state consumer protectionand financial services laws, while exempting insurers.

"The Financial Services Committee made the right decision lastweek when it placed restrictions on the OCC's rampant andunaccountable preemptions of state laws," said Leonard Brevik,executive vice president and chief executive officer of thePIA.

He said the committee can achieve consistency with its previousposition by including the same preemption standards in H.R.2609.

"We are hopeful that the members of the Financial ServicesCommittee will continue to move forward by extending the same kindof restrictions it correctly placed on preemptions of state lawunder the regulatory reform bill to H.R. 2609," Mr. Breviksaid.

Consumer Watchdog, a California-based consumer advocate group,made the same point.

"We are at a loss to understand why you have proposed a measureto deregulate the insurance industry by preempting state laws aspart of the financial re-regulation package," Consumer Watchdogofficials said.

"Each version of the bill would restrict the ability of statelawmakers and regulators to protect insurance consumers by grantingthe Treasury Department and a new Federal Insurance Office theauthority to preempt state laws and regulations on prudentialmatters on behalf of foreign insurance firms.

"This proposal is even more perplexing in light of the strongfight, on the part of both the administration and majority membersof the Financial Services Committee, to preserve states' ability toprotect their citizens during the debate over the ConsumerFinancial Protection Agency," the letter continued.