Washington

Thanks to changes supported by carriers and agents, mostindustry groups are now satisfied with legislation creating aFederal Insurance Office within the Treasury Department that waspassed last week by the House Financial Services Committee,although some insurers are concerned the bill has been watered downtoo much.

The same committee last week also approved a bill givingWashington broad authority to deal with troubled financialinstitutions, including insurers, which are deemed to pose asystemic risk to the economy.

Congressional staff said they believe the House could begindebate on the FIO bill as well as others dealing with financialservices reform as early as this week.

Passed by voice vote, H.R. 2609–the Federal Insurance OfficeAct–creates an office within the Treasury Department designed tocoordinate dealing with international matters, provide informationto a new systemic risk regulator about potentially risky insurers,and collect data on insurance solvency.

However, it now contains specific language denying the newagency any supervisory or regulatory authority over the business ofinsurance, while barring the FIO from preempting state insurancelaws governing rates, premiums, coverage requirements, antitrustlaws, underwriting or sales practices.

The measure was altered considerably from the one proposed bythe Obama administration and later by the committee's Democraticleadership in order to win the support of state insuranceregulators, insurance agents and small insurers.

Specifically, as passed by the committee, in addition to havingno authority to regulate insurers, the FIO's ability to negotiateinternational agreements was also diminished. The bill now requiresthe proposed FIO to share the authority to negotiate internationalagreements with the Office of the U.S. Trade Representative.

Moreover, any agreements reached would only be effective after a"layover" period, during which time Congress would have theauthority to take action.

The measure's language also provides for review in federal courtfor challenges brought against federal preemption of stateinsurance regulations.

David Sampson, president and chief executive officer of theProperty Casualty Insurers Association of America, hailed thechanges made to win unanimous approval.

"We believe it is crucial that this legislation incorporateschanges from both parties, because financial services regulatoryreform will best benefit consumers if Democrats and Republicanswork together to advance long-term solutions," Mr. Sampsonsaid.

The revised bill was also lauded as acceptable by officials ofthe National Association of Mutual Insurance Companies and theIndependent Insurance Agents and Brokers of America.

"This legislation has come a long way since the summer, when wehad a number of major concerns with the broad powers granted to theoffice," said NAMIC's senior vice president of federal andpolitical affairs, Jimi Grande.

"In addressing those concerns, the legislation has moved backtoward its original purpose of providing insurance expertise andinformation to federal policymakers," he added.

Charles Symington, senior vice president of government relationsfor the IIABA, said that while his group "believes that the stateregulatory system should be preserved and reformed, it has becomeclear that the state system needs assistance to effectively addressthe inefficiencies that exist today in the regulation ofinsurance."

The bill passed by the committee now states that an "insurer"under a mandatory data collection provision does not includeinsurance agents and agencies.

"Without this amendment, the newly created FIO would haveinadvertently had the ability to require countless agents, brokersand adjusters to produce any data and information that the FIOmight demand," said IIABA President and CEO Robert Rusbuldt.

Support for the revised bill was not unanimous within theindustry.

Officials of the American Insurance Association said that whilethe legislation "is a good first step," the group "believes thefederal government still needs to have the ability to create andempower an office that will understand how the insurance industryworks, how it handles risk, utilizes capital and meets the needs ofits customers."

The new language on international agreements was a major concerncited by AIA's president and CEO, Leigh Ann Pusey, who said that "anecessary element of this legislation is the authority to negotiateinternational agreements on prudential insurance matters."

"While we remain supportive of the creation of this office, westill have concerns that the language contained in the currentversion of this legislation will not provide the office with theadequate authority it needs," she added. "Without such authority,it could limit the federal government's ability to advocate ourindustry's interest at the international level."

Franklin W. Nutter, president of the Reinsurance Association ofAmerica, said that his group is "encouraged the groundwork has beenput in place to work toward more effective regulatory efficiencies,and we look forward to working with the Senate to strengtheninternational agreements and preemption provisions."

The RAA also praised Rep. Dennis Moore, D-Kan., for introducingan amendment that would create a federal regulator forreinsurers–although that amendment was ultimately withdrawn whenthe committee agreed to hold hearings on a federal regulatory rolefor reinsurers next year.

The RAA also applauded Rep. Moore's second amendment, whichwould require the FIO to submit a report to Congress detailing thebreadth and scope of the global reinsurance market and the criticalrole it plays in supporting insurance in the United States.

Another amendment adopted by the committee would require the newagency to study and report to Congress in one year on how tomodernize and improve the U.S. system of insurance regulation, withthe standard being six principles for insurance industry regulatoryreform laid out previously by the Obama administration:

o Effective systemic risk regulation with respect toinsurance.

o Strong capital standards and an appropriate match betweencapital allocation and liabilities for all insurers.

o Meaningful and consistent consumer protection for insuranceproducts and practices.

o Increased national uniformity through either a federal charteror effective action by the states.

o Improved and broadened regulation of insurance companies andaffiliates on a consolidated basis, including those affiliatesoutside of the traditional insurance business.

o International coordination of insurance regulation.

At the same time, Rep. Barney Frank, D-Mass., chair of theFinancial Services Committee, said during debate on the measurethat proposed legislation creating an optional federal charter forinsurance remains on the table, and the committee will holdhearings on bills creating such a charter next spring.