NAIC Hears Congress' Insurance Plan Jeers, Cheers

"If I understand the SMART Act, it is the beginning of the end [of state regulation," said State Rep. Frank Wald, R-North Dakota.

Mr. Wald, who mentioned that he has been a state legislator for 24 years, predicted that under SMART there would be a gradual encroachment on state insurance regulation that would result in a gutting of insurance departments as functions shifted to the federal level resulting in a loss of millions of dollars of premium taxes for states.

In Mr. Wald's view consumers can more readily have insurance issues addressed at the state level.

Funded consumer representative Birny Birnbaum, who is executive director of the Center for Economic Justice in Austin, Texas, called SMART the DUMB Act- the "Deregulation and Unfunded Mandates Bonanza Act."

Rhode Island State Rep. Brian Kennedy, representing the National Conference of Insurance Legislators, Albany, N.Y., said of SMART, "you can put lipstick on a pig, but it's still a pig."

More measured views were offered by Joel Ario, NAIC newly elected vice president and Oregon insurance administrator, and representatives of life & health and property-casualty trade groups. They mentioned they had concerns with certain parts of the draft but thought that other areas of the document could be acceptable.

Sens. Kennedy and Wald assailed the draft document both for its referencing of the NAIC and what they said was its ultimate whittling away of state authority over insurance regulation.

Those in Congress who are pushing for such legislation, according to Mr. Kennedy, are under the "false premonition that the NAIC, whether through elected or appointed commissioners, make the law. The last I knew, legislators made the law. If they are trying to make an end-run around state legislators, they are making a grave error."

In a letter submitted to Reps. Oxley and Baker on Friday, NCOIL noted the work state legislators have undertaken to streamline state insurance regulation including 41 states enacting reciprocal producer licensing laws.

Mr. Birnbaum said within the draft for SMART, "There is nothing for consumers. It is a fantasy wish list for insurers." He cited "roadblocks and impediments that will have regulators jumping through hoops." Among the points Mr. Birnbaum cited are "impediments and roadblocks" in the market conduct provisions of SMART.

He said that it focuses on giving states the responsibility for policing insurers based in their jurisdiction without an assurance of resources and offers no use of market analysis to determine problems.

Mr. Birnbaum also noted what he said were weak anti-discrimination measures and said that the use of flexible rate bands of between 7-12 percent for setting prices for personal lines in the property-casualty industry does not take into account factors such as credit scoring which can increase premiums by 300-400 percent.

Dave Snyder, a representative with the American Insurance Association, Washington, said that work on the SMART Act that would encourage modernization such as streamlining rates and modernizing the industry is important to prevent the insurance industry from moving offshore like other American industries.

Capital will move from American markets if the American insurance industry cannot modernize itself, he said.

Mr. Ario said that there are two "fundamental" problems with the bill including the issue of rate deregulation and the issue of preemption. But, he noted, there are other areas of the proposal such as market conduct which regulators can agree upon.

A CEO survey conducted by the American Council of Life Insurers, Washington, suggested that streamlining is an important issue and there is support for the SMART Act, said the ACLI's Bruce Ferguson. He noted that the interstate compact and market conduct provisions are positive features.

Randi Reichel, a representative with America's Health Insurance Plans, Washington, said SMART would provide uniformity. She cited a need for uniform treatment of privacy and internal and external reviews.

It is important to look at SMART with an open mind and rely on competitive markets, said Robert Zeman, with the Property Casualty Insurers Association of America, Des Plaines, Ill. He said that rate deregulation has proved successful in Illinois and is proving successful in South Carolina.

Lenore Marema, a PCI rep, said that reference to the NAIC throughout the proposal gives NAIC too much jurisdiction.

The National Association of Mutual Insurance Companies, Indianapolis, issued a statement applauding SMART for addressing issues such as price regulation and "for cause" market conduct examinations.

However, NAMIC also called for state regulators and legislators to work together to enact reforms to avoid a federal proposal coming out of Washington that will not preserve state regulation. Failure to do this, according to NAMIC's Peter Bisbecos, will result in a diminution of the role of state regulation.