NU Online News Service, June 24, 1:00 p.m.EDT

WASHINGTON–The Treasury Department's authority topreempt inconsistent state laws when concluding bilateral insurancetrade agreements with foreign countries will be considerablywatered down in final financial services reform legislation.

House and Senate negotiators Wednesday approved final languageon Title V of H.R. 4173 , which contains the bill's insurance provisions.

The Senate and House negotiations resulted in the creation of aFederal Insurance Office (FIO) that will be housed within theTreasury Department.

The office will have no regulatory authority, but it will havethe power to monitor all activities related to the business ofinsurance except for health insurance and long term careinsurance.

The FIO's negotiating power in bilateral trade agreements hadbeen a key stumbling block during Senate and House discussions oncrafting the insurance title.

Insurance industry representatives were also at odds over theFIO's powers. Larger insurers and the reinsurance industry soughtbroad powers for the FIO and strong preemption authority innegotiating international agreements, while trade groupsrepresenting smaller insurers and insurance agents sought to limitthe office's authority.

Under the agreement reached, the Treasury will share negotiatingauthority with the U.S. Trade Representatives Office.

The FIO will also be required to consult with four congressionalcommittees before the pacts are agreed to and the TreasuryDepartment may be required to defend such agreements in court underthe final legislation.

Additionally, an individual state's consumer protections must bepreserved in any bilateral trade pact.

Blain Rethmeier, a spokesman for the American InsuranceAssociation, said, "We believe that the legislation marks a stepforward in providing the U.S. a stronger voice in internationalinsurance negotiations."

But he added, "We continue to have concerns with provisions thatcould restrict the ability of the federal government to reachagreement on international matters regarding insurance and thushinder the competitiveness of the U.S. insurance industry."

Representing smaller insurers, Jimi Grande, senior vicepresident of federal and political affairs at the NationalAssociation of Mutual Insurance Companies (NAMIC), said, "Since thebill was first introduced, NAMIC has been concerned by the creationof any federal insurance office and the potential for it toultimately hinder companies with duplicative oversight and datacalls.

"We will likely have to fight each day to prevent its growth andexpansion," he said. However, "we are pleased that the confereeshave heard our arguments and exercised restraint."

Mike Becker, director of federal affairs for the NationalAssociation of Professional Insurance Agents (PIA), said theassociation "remains concerned with the overall intent of the FIObecause this is the first step towards federal regulation.

"However, we are pleased to see that the FIO, in its currentstate, does preserve state regulation, which is our toppriority."

Tracy Laws, senior vice president and general counsel of theReinsurance Association of America, said the RAA "was particularlysupportive of the ability of the FIO to educate and study thereinsurance markets at the federal level."

Charles Symington, senior vice president of government affairsfor the Independent Insurance Agents & Brokers of America, saidthat "the conferees have gone a long way to guard against theinappropriate preemption of state insurance laws that have servedto protect insurance consumers during the recent financialcrisis."

Ben McKay, senior vice president of federal government relationsfor the Property and Casualty Insurers Association of America, saidanother key restraint on the new FIO is a requirement that it seekdata from state regulators "before imposing costly and burdensomedata demands on insurers."

Negotiators also agreed Wednesday to a key industry request,that the resolution authority that will be created to wind downsystemically risky financial firms not be pre-funded.

In commenting on that provision, Mr. Rethmeier said that, "Wehave long advocated against the pre-fund and are glad it has beenremoved."

He said that the property and casualty insurance industry"already has a mechanism for state-based resolution proceedings forfailed companies in addition to enhanced consumer protection ofpolicyholders through the guaranty fund system."

Conferees plan to have a final bill to President Obama by July4.