WASHINGTON

Regulatory initiatives dealing with implementation of the financial services reform law, and such old business as providing certainty to the National Flood Insurance Program will keep property and casualty insurance industry lobbyists extremely busy this year.

Part of the ongoing effort to implement the new financial services law will be the continued tug of war over federal regulatory insurance authority, and a related issue–efforts to have a federal insurance charter.

In addition, the Dec. 16, 2010 decision of the National Association of Insurance Commissioners to put its stamp on an interstate compact for implementing federal surplus lines reform measures that is unacceptable to industry may set the stage for a midyear showdown between trade groups and regulators.

"We are extremely disappointed that the NAIC seems to be choosing to walk away from the prospect of surplus lines uniformity in conflict with the letter and the spirit of the nonadmitted provisions of the Dodd-Frank Act," said Joel Wood, senior vice president, government affairs of the Council of Insurance Agents & Brokers.

The NAIC adopted the Nonadmitted Insurance Multistate Agreement, its solution for the collection of surplus lines taxes mandated under the Nonadmitted and Reinsurance Reform Act (NRRA), part of the Dodd-Frank financial reform act.

Louisiana Insurance Commissioner James Donelon, chair of the NAIC's Surplus Lines Implementation Task Force said NIMA allows the states to collect their share of taxes from surplus lines brokers and managing general agents, but conceded that "NIMA is not a broad regulatory compact and it does not go as far as some regulators and almost all of industry would have preferred." (See related textbox, "What The NAIC Did?")

CIAB's Mr. Wood said: "The path chosen by the NAIC to pursue a minimal multistate agreement on revenue sharing will perpetuate regulatory conflict and will not lead us to the system of uniform treatment that the authors of Dodd-Frank intended."

"We'll work with state regulators, legislators and Congress to do everything possible to get this train back on the rails," he added.

Officials of the Kansas City, Mo.-based National Association of Professional Surplus Lines Offices, Ltd., agreed. As part of their efforts, they have distributed information on the new federal law and a model surplus lines law developed by NAPSLO that incorporates Dodd-Frank mandates to state insurance commissioners and chairs of state legislative committees.

The issue is a priority because the federal act takes effect July 1, 2011.

Washington-based trade groups have other issues in their 2011 agenda books also. They plan to:

o Block efforts to repeal the limited antitrust exemption accorded by the McCarran-Ferguson Act

o Work to preserve consumer choice and competition in automotive aftermarket parts.

o Push for legislation that would incentivize the enactment and enforcement of building codes by the states.

The concept there is to increase the amount of federal mitigation funding that states could receive if those codes meet certain standards.

o Push for greater uniformity in agent licensing.

Officials of the Independent Insurance Agents & Brokers of America said they would push for the National Association of Registered Agents and Brokers II, which has passed the House of Representatives twice in recent years and "continues to be a top priority."

The National Association of Professional Insurance Agents said it believes that every jurisdiction should adopt the Producer Licensing Model Act (PLMA), "interpret it in a uniform manner and fully utilize the National Insurance Producer Registry.

"Today, most jurisdictions have the PLMA, and the NAIC has recently completed their producer licensing handbook so insurance departments can get guidance on how to interpret the licensing laws in a uniform manner," PIA said.

"We are hopeful that the NIPR and the NAIC will continue to make progress on these efforts in 2011," PIA officials said.

IIABA officials said they are also keeping a close eye on Congress' consideration of the 2012 farm bill, especially because of the huge cuts in the subsidies provided by the Agriculture Department to the crop insurance program.

"It will be vital to share with Congress the important role that the crop insurance program plays in our nation's agricultural economy in order to protect it from further draconian cuts," IIABA officials said.

OFFSHORE INTERESTS

Alien insurers and multi-national reinsurers, too, say they have a large agenda.

They are working to ensure that the Federal Insurance Office created by the Dodd-Frank financial services law has the stature and authority to effectively deal with foreign regulators in insurance and reinsurance matters.

Offshore insurers say they will also keep an eagle-eye out for so-called "protectionist reinsurance taxes."

Brad Kading, president and executive director of the Association of Bermuda Insurers and Reinsurers, said is upfront about the issue. "ABIR's members make an important economic contribution to the United States," he said. "We oppose enactment of protectionist taxes on international insurance groups with U.S. subsidiaries," he added.

"ABIR members employ more than 15,000 people in the United States, and enactment of punitive taxes on international insurance groups will reduce investment and jobs in the United States and make the U.S. insurance market less competitive to the detriment of consumers," Mr. Kading said.

Separately, ABIR and the Reinsurance Association of America are also proposing that Congress and the Obama administration "explore" either partial or full privatization of the National Flood Insurance Program.

CIAB's Mr. Wood said CIAB members are "intrigued" by the idea of privatizing the federal insurance program.

"Let's be honest. Mitigation and risk improvement will never happen as long as homeowners can buy coverage at deeply subsidized rates," Mr. Wood said.

"That's just a fact," he said. "Congress has been kicking the NFIP can down the road for many years now, and we hope that the new Congress will look seriously at a full range of proposals to reform the NFIP," Mr. Wood said.

Rita Hollada, PIA's representative to the Flood Insurance Producers National Committee (FIPNC), and a former FIPNC chair, said that, "The NFIP has become the victim of an increasingly political atmosphere in recent months and years."

She added that, "The repeated lapses in the program and its manipulation by Congress affect the certainty of the NFIP as a viable insurance program whose sole purpose is to protect and fund recovery for flood damage."

PIA officials said Congress needs to hold hearings and move toward comprehensive reform of the NFIP paired with a full, five-year reauthorization. PIA believes this process must be expedited in the new Congress. Delay will risk another program interruption on September 30, 2010.

Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies NAMIC's said, "There's a lot of opportunity for both parties to show they can work together on these issues."

He said this issue has been held up for five years because of some proposals to expand the NFIP made by members of Congress. "With those members returning to the private sector, hopefully the roadblock has been cleared, and we can start moving the program back towards financial stability," Mr. Grande said.

FIO WATCHDOGS

In addition to NFIP reform, the American Insurance Association, the Property Casualty Insurers Association of America, and the other groups said much effort in 2011 will be focused on the implementation of the Dodd-Frank legislation–and in particular, the need to keep the federal government in check as rules are put in place and the new Federal Insurance Office starts operating.

"We will continue to reinforce our message with regulators that our members should be differentiated from banking and other sectors of the financial services industry," said Leigh Ann Pusey, AIAG president and chief executive officer.

"PCI will be both at the front lines on Capitol Hill acting on priority legislation for insurers, and at the table with regulators to implement the Dodd-Frank Act," said Ben McKay, PCI's senior vice president of federal government relations.

"As the Treasury department and other agencies begin the work of implementing the Dodd-Frank Act, they will seek comment on dozens, if not hundreds of rules, with a flurry of requests expected in January," observed Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies.

In some ways, Mr. Grande said, "we have to go back to the beginning of the process all over again, having the same conversations about systemic risk and the unique nature of p&c insurance with the Administration and regulators that we had with Congress," Mr. Grande said.

Additionally, Mr. Grande said NAMIC will be closely watching the selection of an insurance expert to sit on the Financial Stability Oversight Council, as well as a head of the Federal Insurance Office created by Dodd-Frank.

"Federal agencies usually take on the character of whoever is in charge, and all the more so when it's the first," Mr. Grande said, adding that a concern for the industry will be ensuring that the FIO doesn't expand beyond congressional intent.

"No agency in Washington has ever studied itself without concluding that they need more authority, more staff and a bigger budget," Mr. Grande said. "It's important that the person put in charge of the FIO recognize the role that Congress laid out for them, as an information resource rather than any sort of regulator, and it's important for us to help them see that," he said.

PCI's Mr. McKay said that, "Our goal is to keep home, auto and business insurers from being negatively impacted by new systemic risk or derivatives' rules."

At PIA, officials said they are concerned that the FIO may try to expand its authority far beyond the intent of Congress, citing statements by Treasury Undersecretary Neil Wolin in November.

"The FIO is specifically prohibited from acting as regulator of the business of insurance," PIA said. "We will monitor this new agency to help assure that it does not try to morph itself into a federal insurance regulator.

A related issue is concern by the PIA and IIABA for an optional federal charter.

PIA officials said the "OFC is 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."

At the same time, PIA officials said, "We expect the political shift in Congress to mean further reliance on the state based insurance regulatory system, rather than on expansion of federal regulation or federal solutions'."

Charles Symington, IIABA senior vice president or government affairs, added that the IIABA "will continue to strongly support day-to-day state regulation of insurance and oppose any efforts to create a federal charter for insurance (whether that be optional or mandatory)."

(Additional reporting by Mark E. Ruquet.)