The much-awaited Federal Insurance Office (FIO) report on reforming and modernizing state insurance regulation, mandated by Dodd-Frank, likely will not be unveiled until the end of this month or early March.
However, sources are already suggesting that one component of the report will be the resurrection of a proposal first put forward in 2004: the SMART Act, or State Modernization and Regulatory Transparency Act.
The SMART Act would have, in theory, created a state-national partnership on insurance oversight. Among other intentions, the bill was meant to reform agent-licensing rules and set uniform market-conduct standards and speed-to-market initiatives. It also would have imposed commercial- and personal-lines rate and form modifications.
By resurrecting the SMART Act, the Obama administration, facing a tough re-election battle, would be able to point out that the starting point for modernization would be legislation sponsored by the then-Republican leadership of the House Financial Services Committee.
That would diminish the argument likely to be advanced by states’-rights supporters and conservative critics that the report’s recommendations constitute a power grab by the federal government.
Many industry officials would likely support a revival of the SMART Act because it would call for a phased move to an open-competition model that would allow companies to raise and lower rates without prior regulatory approval.
And taking steps to ease multistate licensing for producers—a key component of the SMART Act—would surely meet with widespread agreement.
In its comment letter to the FIO on insurance modernization, officials of the Independent Insurance Agents and Brokers of America (IIABA) write that, “Obtaining and maintaining the necessary licenses is often a costly, burdensome and time-consuming endeavor, and the need to focus on these administrative matters hinders the ability of insurance agents and brokers to effectively address the needs of consumers.”
But those who support the current regulatory system voiced vehement opposition to the original SMART Act proposal.
For example, in a 2005 report, the National Association of Insurance Commissioners said the legislation would substantially and negatively impact state regulatory authority to supervise P&C, life and health insurance, as well as reinsurance, by establishing federally mandated standards and pre-empting state laws.
In addition to the FIO report basing some of its proposals on the SMART Act, industry insiders expect the report will acknowledge that the federal government will have to play a stronger role in international regulation.
Even advocates of continued state regulation are sure to support calls for FIO and its parent, the Treasury Department, to play a strong role in international insurance, given recent protectionist policies in certain countries and demand for much higher capital standards for financial companies with global businesses.
For example, in comment letters to FIO, the Property Casualty Insurers Association of America (PCI) and one of its members, Liberty Mutual, note that only the federal government has the power to prevent imposition of “bank-centric” international financial regulation by Europeans.
According to several industry officials, they also expect the FIO report to outline ways of dealing with important consumer issues, including the affordability and availability of P&C insurance.