Federal Insurance Reg Bill Introduced In U.S. Senate

Washington

Sen. Ernest F. Hollings, D-S.C., has introduced legislation that would create federal regulation of insurance.

The legislation, S. 1373, would establish a five-member Federal Insurance Commission housed at the Commerce Department that would establish licensing and financial standards for the insurance industry, regulate rates and policies, oversee solvency, investigate market conduct, and establish accounting standards.

The McCarran-Ferguson antitrust immunity would be repealed under the legislation, which is called the Insurance Consumer Protection Act.

The new system would not be optional. All insurance companies that engage in interstate business would come under the authority of the Federal Insurance Commission.

Only insurance companies that do business solely in the state in which they are domiciled would be state regulated.

The Commission would regulate all lines of insurance, including property-casualty and life.

In addition to the Commission, the legislation would establish a Federal Guaranty Corporation that would liquidate insolvent companies and pay claims to affected policyholders.

The legislation would also set up an independent office within the Commission to receive complaints from consumers about improper industry practices and to represent consumers before the Commission.

Consumers would have the right to challenge rate applications filed by insurance companies.

In a statement on the floor of the Senate, Sen. Hollings linked his legislation to efforts to enact tort reform.

Trial lawyers, he said, are really doing a “wonderful service.”

“The onslaught has got to be stopped here on this so-called tort reform because it is totally political,” Sen. Hollings said.

“It is totally campaign funds,” he said. “It is totally the election next year and not the needs of the country.”

He said that in medical malpractice, 1999 data shows that profits as a percentage of premiums are nearly twice as high as for p-c coverage.

“Recent price increases are merely an attempt by the insurance industry to maintain the extremely high level of profitability for malpractice coverage,” Sen. Hollings said.

Robert Rusbuldt, chief executive officer of the Alexandria, Va.-based Independent Insurance Agents and Brokers of America, said his association is totally opposed to the Hollings bill.

“It is not based on marketplace reality,” Mr. Rusbuldt said. “We will fight it every step of the way.”

Mr. Rusbuldt added that he does not think the legislation has much chance of enactment in the near future. Rather, he said he believes Sen. Hollings introduced the legislation because he wants to send a message to the insurance industry.

The legislation does represent a warning to the industry, Mr. Rusbuldt added. There is a slippery slope when dealing with Congress on regulatory issues like this. The insurance industry, he said, needs to approach its drive for insurance regulatory reform very carefully.

David Farmer, senior vice president of federal affairs for the Downers Grove, Ill.-based Alliance of American Insurers, said that Sen. Hollings is confusing apples and oranges.

The issue of medical malpractice, he said, involves legitimate policy concerns over whether state laws should be preempted.

The issue of insurance regulation, he said, relates to whether there should be greater federal involvement in regulation.

Trying to link the two issues confuses the debate, Mr. Farmer said.

The Alliance, Mr. Farmer added, continues to support state insurance regulation.

Jennifer Gibson, federal affairs director for the Indianapolis-based National Association of Mutual Insurance Companies, added that while NAMIC is still examining S. 1373, there are several initial concerns.

For example, she said, the legislation would create two separate regulatory structures, one for multistate companies and the other for single-state companies, which would create an unlevel playing field and sow confusion among consumers.

In addition, Ms. Gibson said, the legislation would create a national guaranty fund for federally regulated companies, thus draining the resources of state guaranty funds and placing a large burden on single-state insurers.

Moreover, she said, the legislation appears to create prior approval rating, which will lead to delays in getting new products to market.

The bill would also create a huge new federal bureaucracy and a massive new federal database, Ms. Gibson said.

“In general, NAMIC strongly supports state insurance regulation and opposes any legislation that creates a federal insurance regulatory,” she added.

Carl Parks, senior vice president of government affairs for the Des Plaines, Ill.-based National Association of Independent Insurers, blasted the legislation.

“NAII views this proposal as unfounded, unjustified and unnecessary,” Mr. Parks said. “It provides sweeping new powers to a vaguely defined new federal regulatory body and usurps the authority of states to regulate the insurance industry.”

Noting concerns within the industry regarding regulatory reform, Mr. Parks said that efforts made in the states during the past year are a sign of real progress. The Hollings bill, he said, undermines these positive developments.

Julie Rochman, senior vice president of public affairs for the Washington-based American Insurance Association, said that AIA is still going through the legislation. She added, however, that the McCarran-Ferguson Act has nothing to do with medical malpractice.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, July 21, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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Federal Insurance Reg Bill Introduced In U.S. Senate

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