Oxley: Congress Must Force Insurance Uniformity

By Steven Brostoff, Washington Editor

NU Online News Service, March 31, 4:05 p.m. EST, Washington?Uniformity in state insurance regulation will be impossible to achieve without Congressional legislation, House Financial Services Committee Chairman Mike Oxley, R-Ohio, said.[@@]

Throughout more than 14 hearings conducted by his committee, Rep. Oxley said, it is clear that the states cannot get the job done by themselves.

Speaking at what was said to be the final hearing on insurance regulatory reform before the introduction of legislation, Rep. Oxley said the "collective action barrier" to getting 56 states and territories and regulators to act in complete unison is "insurmountable," absent legislation.

But few details of what the committee has in mind were released. During an earlier speech, Rep. Oxley outlined a conceptual framework, which he called a "road map," calling for an incremental approach using federal tools to force states to adopt regulatory reforms. But the framework was not fleshed out during the hearing

Rep. Richard Baker, R-La., who chairs the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, said that if the committee is going to follow an incremental approach, there will have to be some federal enforcement mechanism.

He called this approach "incremental with weaponry."

Representatives of the Kansas City, Mo.-based National Association of Insurance Commissioners pledged to work with the committee.

Ernie Csiszar, NAIC president and the insurance commissioner for South Carolina, said that NAIC wants to be a partner in the process and will keep an open mind when the details are released. But he added that the very fact that the committee is considering legislation will by itself encourage states to take action on reform.

"We know we have some problems," Mr. Csiszar said. "We know reform is needed."

But during his testimony, he outlined the variety of initiatives already underway at NAIC to respond to concerns over speed-to-market, uniformity and market-based rating.

He cautioned, however, that state insurance markets are not the same. In particular, Mr. Csiszar said, property-casualty insurance is tied to state tort laws as well as state demographics, such as whether it is industrial or rural.

He added that problems faced by consumers are also local in nature.

But Rep. Paul Kanjorski, D-Pa., a senior Democrat on the committee, questioned the pace of change. It seems that insurance regulatory reform is always three years, five years or 10 years away. Already, he said, it is five years since the enactment of the Gramm-Leach-Bliley Act.

"I'm starting to lose confidence that all 50 states are capable of coming together and solving these problems," Rep. Kanjorski said.

But Mr. Csiszar said that any type of national regulation would eviscerate state regulation. As for the pace of change, he said, the proof is in the pudding.

"We must deliver," Mr. Csiszar said.

If five years from now the states have not achieved regulatory reform, he told the committee, "you can hammer me over the head."

Mr. Csiszar said it is also important to recognize the accomplishments of state insurance regulation. The system, he said, really works quite well.

So far, he said, the insurance industry has not experienced some of the problems faced by other financial services industries. He cited as examples the savings and loan collapse, the insolvency of BCCI, and the recent scandals involving mutual funds.

Similarly, Mr. Csiszar said, the insurance industry has not experienced anything like Enron or Tyco.

As for an optional federal charter, Mr. Csiszar said that would be the worst of all possible solutions. There are all kinds of problems with OFC, including what to do about premium taxes and guaranty funds.

Moreover, he said, insurance regulation is different from banking regulation. (The dual chartering banking system is often cited as the model for OFC in the insurance industry.)

Insurance is a mandated product, he said, in that states often require car owners to purchase auto insurance and lenders require homebuyers to purchase homeowners insurance.

Insurance, Mr. Csiszar said, is treated by consumers as a "nuisance" purchase. They purchase the product in the hope that they won't have to use it.

Consumers, he said, are not getting anything more from an insurance company than a promise. The basic issue, he said, is what kind of regulatory process will assure that the promise will be fulfilled.

Overall, he reiterated, state insurance regulation has performed well.

He added that he could not comment on the road map presented by Rep. Oxley because it is still conceptual in nature.

Special Reports /

Oxley: Congress Must Force Insurance Uniformity

Related Stories

Recommended For You