N.Y.'s Serio: Gives SMART Bill A Passing Mark

N.Y.'s Serio: Gives SMART Bill A Passing Mark

By Jim Connolly

NU Online News Service, Sept. 28, 11:57 a.m. EDT, New York?Congress' working draft for an insurance reform measure is not a "sea change" from existing regulation and is a "fairly well crafted piece of legislation for a first effort," according to New York Insurance Superintendent Gregory Serio.[@@]

Mr. Serio, speaking at the 16^th annual insurance industry conference sponsored by KPMG LLP, said the proposals for the State Modernization and Regulatory Transparency Act could provide a helpful tool for regulators.

The number of insurance issues on the Congressional calendar shows the interest federal lawmakers have in the industry, he said. "It is a very positive sign."

What is also positive, according to Mr. Serio, is the measured approach federal lawmakers are taking in learning about the issues and not making immediate judgments on insurance issues. It is different, he said, from the days in the 1990s when a report on the industry's "failed promises" was issued by Rep. John Dingell, D-Mich.

The industry is not going to be victimized nor is it going to get everything that it wants, he continued. Life insurers are not going to get an optional federal charter, at least in this Congress, and the property-casualty industry is not going to automatically get open rating, he added.

Congress' measured approach is currently reflected in how it is reviewing sales of life insurance to military recruits, Mr. Serio said. Congress is "considering options but is not castigating the life insurance industry in a perfunctory fashion."

"It is not hysterical. It would be very easy to be hysterical and raise the flag to protect troops who are currently in harm's way, but this is a more measured approach."

Critics have said young military personnel were being sold overpriced and unnecessary coverage.

On that issue, Mr. Serio said that state insurance regulators are pursuing "aggressive enforcement" since agent licensing and other related issues are part of a state regulator's responsibility.

Of other matters currently pending in Congress, Mr. Serio said that although there is still a lot of work to be done to renew the Terrorism Risk Insurance Act, he his hopeful that can be accomplished.

"We need the continued stability of TRIA," which will provide coverage to businesses in the event of man-made terrorist events, he added. He cited backstop measures, such as a pool that will now protect Florida homeowners in light of four devastating hurricanes in six weeks, which prove the need for continuing the federal backstop.

Mr. Serio also tackled the issue of rate regulation, a topic that he was quizzed on by Sen. John Sununu, R-N.H., last week when he testified before the Senate Banking Committee. The issue is always looked on as one of capping prices, but should also be viewed in terms of what happens if rates get too low, he added.

When rates get too low, insolvencies ensue, Mr. Serio explained. "When rates get too low, that's when companies disappear," he added. "There needs to be maintenance of adequate rates. It shouldn't be a price-driven commodity."

For instance, he cited a requirement for reasonable medical malpractice insurance rates in New York State that resulted in more even rates. If there were open rating in any federal law, then legitimate companies could not be protected from "rogues" who charged unreasonably low rates, Mr. Serio said. Flexible rating works very well by offering a balance, he explained.

When asked about his position on making insurers adhere to requirements of the Sarbanes-Oxley Act of 2002, Mr. Serio said that the act and Section 404 of that law, which requires certification of internal controls by management, is for public companies and not an idea that should be applied to mutual insurance companies or not-for-profits.

"It is for a limited population and not for insurance companies as a whole," he added. Good corporate governance can be used to ensure mutuals and not-for-profits have strong financials, Mr. Serio explained. He said that he has instructed his staff to take such an approach when the issue comes up before the National Association of Insurance Commissioners, and in other venues.