WASHINGTON--The Treasury Department's authority to preempt inconsistent state laws when concluding bilateral insurance trade agreements with foreign countries will be considerably watered down in final financial services reform legislation.
House and Senate negotiators Wednesday approved final language on Title V of H.R. 4173 , which contains the bill's insurance provisions.
The Senate and House negotiations resulted in the creation of a Federal Insurance Office (FIO) that will be housed within the Treasury Department.
The office will have no regulatory authority, but it will have the power to monitor all activities related to the business of insurance except for health insurance and long term care insurance.
The FIO's negotiating power in bilateral trade agreements had been a key stumbling block during Senate and House discussions on crafting the insurance title.
Insurance industry representatives were also at odds over the FIO's powers. Larger insurers and the reinsurance industry sought broad powers for the FIO and strong preemption authority in negotiating international agreements, while trade groups representing smaller insurers and insurance agents sought to limit the office's authority.
Under the agreement reached, the Treasury will share negotiating authority with the U.S. Trade Representatives Office.
The FIO will also be required to consult with four congressional committees before the pacts are agreed to and the Treasury Department may be required to defend such agreements in court under the final legislation.
Additionally, an individual state's consumer protections must be preserved in any bilateral trade pact.
Blain Rethmeier, a spokesman for the American Insurance Association, said, "We believe that the legislation marks a step forward in providing the U.S. a stronger voice in international insurance negotiations."
But he added, "We continue to have concerns with provisions that could restrict the ability of the federal government to reach agreement on international matters regarding insurance and thus hinder the competitiveness of the U.S. insurance industry."
Representing smaller insurers, Jimi Grande, senior vice president of federal and political affairs at the National Association of Mutual Insurance Companies (NAMIC), said, "Since the bill was first introduced, NAMIC has been concerned by the creation of any federal insurance office and the potential for it to ultimately hinder companies with duplicative oversight and data calls.
"We will likely have to fight each day to prevent its growth and expansion," he said. However, "we are pleased that the conferees have heard our arguments and exercised restraint."
Mike Becker, director of federal affairs for the National Association of Professional Insurance Agents (PIA), said the association "remains concerned with the overall intent of the FIO because this is the first step towards federal regulation.
"However, we are pleased to see that the FIO, in its current state, does preserve state regulation, which is our top priority."
Tracy Laws, senior vice president and general counsel of the Reinsurance Association of America, said the RAA "was particularly supportive of the ability of the FIO to educate and study the reinsurance markets at the federal level."
Charles Symington, senior vice president of government affairs for the Independent Insurance Agents & Brokers of America, said that "the conferees have gone a long way to guard against the inappropriate preemption of state insurance laws that have served to protect insurance consumers during the recent financial crisis."
Ben McKay, senior vice president of federal government relations for the Property and Casualty Insurers Association of America, said another key restraint on the new FIO is a requirement that it seek data from state regulators "before imposing costly and burdensome data demands on insurers."
Negotiators also agreed Wednesday to a key industry request, that the resolution authority that will be created to wind down systemically risky financial firms not be pre-funded.
In commenting on that provision, Mr. Rethmeier said that, "We have long advocated against the pre-fund and are glad it has been removed."
He said that the property and casualty insurance industry "already has a mechanism for state-based resolution proceedings for failed companies in addition to enhanced consumer protection of policyholders through the guaranty fund system."
Conferees plan to have a final bill to President Obama by July 4.