N.Y. Regulator Serio Discusses SMART Issues

"Those are the two issues that we have," Mr. Serio said, "fewer issues than you might think." That's because, he said, its drafters at the House Financial Services Committee "have engaged in a policy of inclusion with the regulators."

Regulators will hold a telephone conference call next week to discuss their problems with the draft, he said, although he gave no timeline as to when the NAIC will communicate proposals for changes to the committee.

Mr. Serio is also chairman of the NAIC's government affairs panel.

The legislation, called the "State Modernization and Regulatory Transparency Act," or SMART, has 17 titles and encompasses 320 pages.

The draft's property/casualty provisions include calls for creation of a uniform system of agent licensing and market conduct regulations.

Other critical provisions borrowed from the NAIC road map unveiled in June include stronger and more uniform oversight of insurance company solvency as well as greater coordination and uniformity between the states in dealing with receivership, Mr. Serio said. The latter provisions should help regulators with their "first and foremost job," insuring the financial health of the industry, he said.

The latter should also help wean regulators from thinking of liquidation as their first step in dealing with troubled companies, and instead focus on rehabilitation rather than liquidation, he said.

Mr. Serio said that "early intervention is a key to forestalling liquidation."

The regulators' concern with the competitive rates title is that, "if there are no checks, then the AIG and Travelers of this world are going to be in the position of picking up the pieces at the end of the day," Mr. Serio said. "Competitive rating is great as long as carriers act responsibly," he said. "But if you drive rates too low, companies become financially unstable."

Specifically, the regulators are "not opposed to competitive pricing, but it has to be done responsibly," he added. "I don't know what the magic formula is," he said.

Regarding the title calling for a state-national partnership, Mr. Serio asked, "Why is it there? What is it supposed to do?"

The draft bill calls for establishing a seven-member group, with three state regulators from states of various sizes, as well as representatives of the Securities and Exchange Commission, the Federal Reserve Board and the Department of the Treasury. Its head would be nominated by the NAIC and appointed by the president of the U.S.

Mr. Serio said the problem with such a body is that it lacks a concrete format and structure. Therefore, it is not needed, he argued, because of changes in state regulation that are ongoing as well as the changes proposed in the bill.