Regulators warned to create uniformity, cut red tape or riskfederal takeover

By caroline mcdonald

Unless states move to cut red tape and create nationaluniformity for the insurance sector, the push for a federalregulatory takeover will increase in Washington, a key member ofCongress warned.

Rep. Michael Oxley, the Ohio Republican who chairs the HouseFinancial Services Committee, said that although he supports thesystem of state insurance regulation, if progress is not made andreasonable reforms are not implemented, "supporters of federalregulation will continue to gain strength in Washington."

Rep. Oxley's comments came during a discussion of the proposedState Modernization and Regulatory Transparency (SMART) Act at therecent Property Casualty Insurers Association of America annualmeeting in Chicago.

Rep. Oxley–who announced last week that he would retire when histerm ends in January 2007–portrayed SMART as a middle-of-the-roadmeasure that avoids a federal takeover. He said the bill–which setsfederal standards for state regulation–would cut red tape andfoster competition.

He noted that although this year's trio of hurricanes changedthe agenda in Congress, the SMART Act is still a priority for hispanel. "Despite what you may have heard about SMART, it is not theend of state-based insurance regulation," he said. "Those are scaretactics coming from people who have, they think, something tolose."

He added that, "in fact, SMART builds on existing stateregulatory reform and does not create an optional federal charteror federal regulator."

Rep. Oxley said two major political obstacles are impactingSMART–the first being how much federal involvement there should be,with several powerful industry groups continuing to push for anoptional federal charter.

"State groups want no federal presence," he said. "SMART takesthe compromise position. It does not create a federal charter orregulator, but requires uniformity in several key areas such asagent and company licensing, market conduct and surplus lines."

The second political issue, he said, is competitive pricing,noting that insurance is the only financial services sector subjectto state price controls.

"In the era of federal deregulation of the financial servicesindustry, providing more competition and the like, your industry isthe only one that faces price controls," he said. "Competitivepricing and the elimination of price controls will bring morechoices and lower prices for consumers over time."

Rep. Oxley said that during hearings on the bill, "almost everywitness that appeared before our committee testified about theglaring need for reforms, including many of the NAIC's recentleaders."

He noted that as South Carolina insurance commissioner, PCI'spresident, Ernst Csiszar, had been a proponent of SMART. Mr.Csiszar was also president of the National Association of InsuranceCommissioners when he left to head up PCI.

Rep. Oxley said that since Mr. Csiszar's departure, the NAIC hasrecently been openly critical of SMART, but has not offered areasonable alternative "other than the status quo–the status quo isnot acceptable." He said NAIC and the states have not beensuccessful in implementing uniform reforms and that "criticalproblems continue to persist."

Rep. Oxley said a bill creating SMART will be introduced once aredraft has been completed, noting that "the process has beenslowed by our intense focus on the hurricane issues and response toHurricane Katrina."

Quotebox, with mug:

"Despite what you may have heard about SMART, it is not the endof state-based insurance regulation. Those are scare tactics comingfrom people who have, they think, something to lose."

Rep. Michael Oxley, R-Ohio