Washington

Thanks to changes supported by carriers and agents, most industry groups are now satisfied with legislation creating a Federal Insurance Office within the Treasury Department that was passed last week by the House Financial Services Committee, although some insurers are concerned the bill has been watered down too much.

The same committee last week also approved a bill giving Washington broad authority to deal with troubled financial institutions, including insurers, which are deemed to pose a systemic risk to the economy.

Congressional staff said they believe the House could begin debate on the FIO bill as well as others dealing with financial services reform as early as this week.

Passed by voice vote, H.R. 2609–the Federal Insurance Office Act–creates an office within the Treasury Department designed to coordinate dealing with international matters, provide information to a new systemic risk regulator about potentially risky insurers, and collect data on insurance solvency.

However, it now contains specific language denying the new agency any supervisory or regulatory authority over the business of insurance, while barring the FIO from preempting state insurance laws governing rates, premiums, coverage requirements, antitrust laws, underwriting or sales practices.

The measure was altered considerably from the one proposed by the Obama administration and later by the committee's Democratic leadership in order to win the support of state insurance regulators, insurance agents and small insurers.

Specifically, as passed by the committee, in addition to having no authority to regulate insurers, the FIO's ability to negotiate international agreements was also diminished. The bill now requires the proposed FIO to share the authority to negotiate international agreements with the Office of the U.S. Trade Representative.

Moreover, any agreements reached would only be effective after a "layover" period, during which time Congress would have the authority to take action.

The measure's language also provides for review in federal court for challenges brought against federal preemption of state insurance regulations.

David Sampson, president and chief executive officer of the Property Casualty Insurers Association of America, hailed the changes made to win unanimous approval.

"We believe it is crucial that this legislation incorporates changes from both parties, because financial services regulatory reform will best benefit consumers if Democrats and Republicans work together to advance long-term solutions," Mr. Sampson said.

The revised bill was also lauded as acceptable by officials of the National Association of Mutual Insurance Companies and the Independent Insurance Agents and Brokers of America.

"This legislation has come a long way since the summer, when we had a number of major concerns with the broad powers granted to the office," said NAMIC's senior vice president of federal and political affairs, Jimi Grande.

"In addressing those concerns, the legislation has moved back toward its original purpose of providing insurance expertise and information to federal policymakers," he added.

Charles Symington, senior vice president of government relations for the IIABA, said that while his group "believes that the state regulatory system should be preserved and reformed, it has become clear that the state system needs assistance to effectively address the inefficiencies that exist today in the regulation of insurance."

The bill passed by the committee now states that an "insurer" under a mandatory data collection provision does not include insurance agents and agencies.

"Without this amendment, the newly created FIO would have inadvertently had the ability to require countless agents, brokers and adjusters to produce any data and information that the FIO might demand," said IIABA President and CEO Robert Rusbuldt.

Support for the revised bill was not unanimous within the industry.

Officials of the American Insurance Association said that while the legislation "is a good first step," the group "believes the federal government still needs to have the ability to create and empower an office that will understand how the insurance industry works, how it handles risk, utilizes capital and meets the needs of its customers."

The new language on international agreements was a major concern cited by AIA's president and CEO, Leigh Ann Pusey, who said that "a necessary element of this legislation is the authority to negotiate international agreements on prudential insurance matters."

"While we remain supportive of the creation of this office, we still have concerns that the language contained in the current version of this legislation will not provide the office with the adequate authority it needs," she added. "Without such authority, it could limit the federal government's ability to advocate our industry's interest at the international level."

Franklin W. Nutter, president of the Reinsurance Association of America, said that his group is "encouraged the groundwork has been put in place to work toward more effective regulatory efficiencies, and we look forward to working with the Senate to strengthen international agreements and preemption provisions."

The RAA also praised Rep. Dennis Moore, D-Kan., for introducing an amendment that would create a federal regulator for reinsurers–although that amendment was ultimately withdrawn when the committee agreed to hold hearings on a federal regulatory role for reinsurers next year.

The RAA also applauded Rep. Moore's second amendment, which would require the FIO to submit a report to Congress detailing the breadth and scope of the global reinsurance market and the critical role it plays in supporting insurance in the United States.

Another amendment adopted by the committee would require the new agency to study and report to Congress in one year on how to modernize and improve the U.S. system of insurance regulation, with the standard being six principles for insurance industry regulatory reform laid out previously by the Obama administration:

o Effective systemic risk regulation with respect to insurance.

o Strong capital standards and an appropriate match between capital allocation and liabilities for all insurers.

o Meaningful and consistent consumer protection for insurance products and practices.

o Increased national uniformity through either a federal charter or effective action by the states.

o Improved and broadened regulation of insurance companies and affiliates on a consolidated basis, including those affiliates outside of the traditional insurance business.

o International coordination of insurance regulation.

At the same time, Rep. Barney Frank, D-Mass., chair of the Financial Services Committee, said during debate on the measure that proposed legislation creating an optional federal charter for insurance remains on the table, and the committee will hold hearings on bills creating such a charter next spring.

Special Reports /

Revamped U.S. Insurance Office Bill Clears House Hurdle, Draws Industry Praise

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