No matter which party controls the House of Representatives, Congress will see a “major push” on optional federal charter (OFC) legislation in the next session, according to House Financial Services Committee Chairman Barney Frank (D-Mass.). He made the remark during a speech to the summer meeting of the National Conference of Insurance Legislators (NCOIL).
Related: Read August’s Legislative Roundup “Taking stock of the 2010 state legislative sessions.”
Rep. Frank said he kept federal charter discussions off the table during negotiations over the financial regulatory reform bill he co-authored, but said he will be a “neutral party” in the federal charter debate.
Rhode Island State Rep. Brian Kennedy, chairman of NCOIL’s Communications, Financial Services and Interstate Commerce Committee, said he remains concerned about optional federal charters, both because the states have done an excellent job in insurance consumer protection, and the potential loss of premium tax revenues.
Main Street insurance agents who support state insurance regulation may be asking, “Why is OFC being debated again?” The answer is simple: Supporters of federal insurance regulation are persistent. They won’t go away because too much money is at stake.
Never mind that successive Congresses–both Republican and Democratic–have examined and consistently rejected optional federal charters. In fact, there is continuing majority support for state insurance regulation, especially since inept federal regulation of banks and securities led to the financial meltdown that almost tanked the world’s economy.
Optional federal charters are being pushed by narrow economic interests that stand to benefit by getting the federal government to allow them to evade the kind of prudent, state-based supervision that saved the insurance industry from the financial meltdown. What interests? Big banks, major securities firms and a handful of insurance carriers.
In short, the combatants in this battle are the same as always: it’s the advocates of federal regulation versus Main Street.
Rep. Frank seemed to be aware of the reaction of state legislators and agents when he spoke at the NCOIL meeting.
“You don’t need to alter a system that’s working well,” he said. “Insurance has been very well regulated at the state level. Insurance should continue to be state regulated.” He added that he has a great deal of respect for state legislators and regulators, noting that the nation’s independent insurance agents oppose OFC. Frank said he has plenty to do at the federal level and prefers keeping insurance regulation with the states.
But then Frank added that OFC cannot be kept at bay because there are a significant number of supporters for the idea in the House. He also noted that there is significant opposition, as well–and that grassroots action will always trump campaign contributions.
“Public opinion will beat any amount of campaign contributions,” Frank said. “There are natural networks of people who earn their living in a certain way and are distributed throughout the nation–agents, realtors, credit unions.”
Frank said the discussion of OFC was inevitable, terming it an effort to accommodate members of the House who are interested in it. He assured NCOIL that the federal government has no interest in being in charge of auto insurance.
“When they [members of Congress] get to the federal level, people want to make grand, international macroeconomic policy, and worrying about the little old lady who thinks she’s been treated badly is considered a diversion,” Frank said.
Another fight for Main Street
It is clear that the Chairman of the House Financial Services Committee supports state insurance regulation and believes he has better things to do than deal with another concerted push for federal regulation. But it is also clear that the proponents of federal regulation will not be deterred, so Rep. Frank is having to acquiesce to yet another full debate on the issue.
This debate cuts across traditional political lines. Many conservative Republicans oppose federal expansion into insurance, but some support it. Conversely, while there are Democrats who support federal regulation, quite a few oppose it. This is a vivid example of the old saying about how “politics makes strange bedfellows.”
Another front in the battle to preserve state insurance regulation in 2011 will be preventing the new Federal Insurance Office (FIO) from morphing into the regulator of all insurance matters. Currently, it is specifically restrained from doing so by explicit language in the bill that created the office which states that “Nothing … shall be construed to establish or provide the office or the Department of the Treasury with general supervisory or regulatory authority over the business of insurance.”
But the fact remains that many of the supporters of setting up the Federal Insurance Office also support optional federal charters. Some have said openly that they consider formation of the FIO as the first step to an OFC.
Unfortunately, the bill authorizing FIO also includes a mandate for the new agency to conduct a study that includes the “costs and benefits of potential federal regulation of insurance across
various lines,” and report to Congress with recommendations in 18 months. The fact that the new FIO’s first task is to conduct what is in essence a study of itself points toward a biased study from the outset that will likely recommend expansion of the FIO. The National Assn. of Professional Insurance Agents (PIA) attempted to get lawmakers to substitute the non-partisan Government Accountability Office for the FIO as the entity conducting this study; that change was not forthcoming.
It is ironic that the rationale cited for creating the FIO was a lack of knowledge of insurance at the federal level–but then the new FIO was tasked with making broad, sweeping recommendations to Congress on how insurance is to be regulated, absent such knowledge and absent the objectivity needed for such a task.
A “Trojan horse”
The FIO study is a Trojan horse for a recommendation favoring federal insurance regulation. Eighteen months hence, we can expect to see another document that rehashes the 2008 report by former Treasury Secretary Henry Paulson, the “Blueprint for a Modernized Financial Regulatory Structure.” The section of that report dealing with insurance envisioned our industry being subsumed into a unified, global financial services sector.
Fortunately, the battle against that bad idea has already been joined. Independent insurance agents and many carriers, especially regionals, have no interest in being subsumed into such a “new world order.” In addition to agents, carriers are preparing to oppose OFC or any federalization of insurance regulation.
A new group has been formed to oppose any type of federal regulation of insurance. The States Alliance for Balanced Insurance Regulation (SABIR) is chaired by Ernst Csiszar, a former president of the National Assn. of Insurance Commissioners (NAIC) and former head of the Property Casualty Insurers Assn. of America. SABIR will represent small-to-midsize insurers in the new group designed to fend off increased federal regulation of the industry.
Agents also must remain steadfast in opposition. PIA National President Jon D. Spalding said in a statement that his association’s members are not waiting until 2011, they began taking their case to members of Congress during the August 2010 congressional recess.
“PIA members reminded members of Congress and congressional candidates that America’s Main Street insurance agents expect them to vote ‘no’ on the so-called optional federal charter–no excuses and no compromises,” Spalding said.
What must be guarded against related to this renewed push to create optional federal charters is compromise. Opponents must not be lured into negotiations on OFC legislation with promises of “a seat at the table.” This is not a table at which agents or carriers should sit. Such legislation must be opposed and defeated, not “shaped.”
Agents and carriers who oppose federal regulation of insurance must coalesce to bring a common-sense perspective to the congressional debate.
Meanwhile, state regulation of insurance has fared comparatively well in Congress during 2010, indicating that support is significant.
State regulation was preserved in the financial reform bill that was enacted. FIO was created, but its preemption authority was reined in (although not its mandate to, in effect, study itself and make recommendations to Congress). An attempt by the Securities and Exchange Commission to take over regulation of indexed annuities from the states was thwarted by an amendment to the financial bill and a court decision. Responsibility for implementation of the new healthcare law was vested in the states, with the NAIC charged with coordination.
Now it’s shaping up that 2011 will see another battle to preserve state regulation of insurance. Main Street agents are about to have another big fight on their hands. Agents won many times before, and in 2011 they’ll win again.