WASHINGTON–The National Association of Insurance Commissioners, in a move they acknowledged is not unanimous, said they will support significantly revised legislation creating a federal Office of Insurance Information.

The NAIC letter to the measure's sponsor yesterday, backing creation of OII within the Treasury Department, came after the insurance regulators won concessions to reduce the new agency's ability to preempt state insurance laws, an informed source told National Underwriter.

In its latest version, the Information Act of 2008 (H.R. 5840) would allow the new Treasury agency to become an insurance information clearinghouse at the federal level and lead resource for negotiation of trade agreements with foreign nations.

And, according to an industry lawyer with knowledge of the negotiations, who asked for anonymity because he is not authorized to speak for his client, the bill still allows preemption of state law in cases where that law discriminates against foreign insurers–if the state law conflicts with an international agreement.

If enacted, according to the attorney, the measure would be a historic evolution of insurance law by involving the federal government in insurance regulation, an area that has in the past been the province of state legislatures and the NAIC.

The NAIC letter clears the way for prompt House action on the bill, probably at midweek, under expedited rules.

It is expected that legislation recreating the National Association of Registered Agents and Brokers (H.R. 5611), providing a national license for agents, will be acted on by the House at the same time.

In its letter, the NAIC made clear that it would fight any further legislation that it views as encroachment by federal regulators into insurance regulation.

“To be clear, we view the preemptive aspects of this legislation, however narrow, with extreme caution and skepticism,” the letter said.

“We continue to believe that the federal government should not be in the business of regulating insurance, and we will continue to unequivocally reject any effort to use this or other legislation as a justification for further federal involvement,” it added.

The letter was signed by five state commissioners, including current NAIC President Sandy Praeger, Kansas insurance commissioner, and Roger Sevigny, New Hampshire commissioner, the incoming president of the NAIC.

It stated that support amongst the commissioners was “not unanimous.”

Approval came after weeks of talks by the state commissioners and NAIC with Rep. Paul Kanjorski, D-Pa., primary sponsor of the bill and chairman of the Capital Markets Subcommittee of the House Financial Services Committee.

The Senate Banking Committee is considering whether to throw its support behind the measure, and industry lobbyists privately say that action in the Senate on all pending insurance legislation could take place perhaps as late as the week of Sept. 26.

However, Congress could decide to return for a lame duck session after the November election.

In the letter, the NAIC said the changes it agreed to include the following:

o The preemption and scope language has been clarified so that any preemption of an inconsistent state insurance measure is only to the extent of the inconsistency and only to the extent that the measure treats a non-U.S. insurer more or less favorably than a U.S. insurer.

o Savings provisions have been improved to ensure that any preemptive power is explicitly limited to covered agreements and cannot impede state regulation of an insurer's rates, premiums, underwriting practices, coverage requirements, or the application of state antitrust laws.

o The definition of a covered agreement has been made solely prospective and limited to those agreements that provide for recognition of insurance measures that protect U.S. consumers and are substantially equivalent to U.S. protections.

o The federal authority entering into any covered agreement must coordinate with state insurance regulators to identify provisions in the agreement that protect U.S. consumers and are substantially equivalent to U.S. protections.

o The states and other interested parties are afforded several opportunities for notice and comment and are given time to address inconsistent insurance measures. Any preemptive determinations are also subject to judicial review and the Administrative Procedures Act.

o The Treasury is required to consult with the Advisory Board, which includes state insurance regulators and a state legislator, in determining any stay of preemption.

o The Treasury must stay preemption of the state insurance measure if it is necessary for the protection of policyholders and claimants and for the safety and soundness of the market, or if the preemption will result in a gap in financial or market conduct regulation, or if the preemption necessitates establishing any federal supervisory authority.

The NAIC also noted that, in its view, “the legislation now includes non-severability language to ensure the integrity of the protections and improvements made to the preemptive aspects of the legislation.”

But, while the NAIC now says it can support the measure, some state lawmakers are expressing vehement opposition. The National Conference of Insurance Legislators said it plans to deliver a letter to members of Congress stating, “NCOIL will not support a bill that will lead to a dangerous optional federal charter (OFC) for insurance regulation and that will unravel the strong consumer protections embedded in state-based insurance regulation.”

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NAIC Leadership Backs Revised OII Bill

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