NY's Serio Defends NAIC Regulation To Congress

NY's Serio Defends NAIC Regulation To Congress

By Arthur D. Postal, Washington Bureau Chief

NU Online News Service, Sept. 22, 6:58 p.m. EDT, Washington?Modernization of the state-based insurance regulatory system is "on time and on target," New York Insurance Superintendent Greg Serio testified today before the Senate Banking Committee in a strong defense of the status quo in insurance regulation.[@@]

Mr. Serio's comments were made at a hearing on the status of state-based insurance regulation convened by Sen. Richard Shelby, R-Ala., chairman of the powerful banking panel. Besides representing New York, Mr. Serio was also representing the National Association of Insurance Commissioners as chairman of the NAIC's Government Affairs Task Force.

His comments came in the face of pressure from insurance companies and the trade groups which represent them who are asking Congress to impose a more uniform system of insurance regulation through greater federal involvement.

Mr. Serio spoke as legislation is being drafted in the House Financial Services Committee that would impose federal standards on insurance regulation and also establish a continuing federal role in state insurance regulation by creating a so-called "state/federal partnership" panel.

That panel would consist of three state insurance regulators, representatives of three federal agencies, and have a chairman nominated by state insurance regulators but appointed by the President.

The NAIC is expressing particular concern about a proposal for the legislation, known as the State Modernization and Regulatory Transparency Act or SMART, that would end state regulation of property/casualty insurance rates, albeit over a period of time.

The SMART bill is scheduled to be introduced by Reps. Mike Oxley, R-Ohio, House Financial Services Committee chairman and Richard Baker, R-La., chairman of the main subcommittee, the Capital Markets Subcommittee, very soon.

"NAIC and the states are well underway in our efforts to modernize state regulation where improvements are needed, while preserving the benefits of local consumer protection that is the real strength of state insurance regulation," Mr. Serio testified.

He said, "With NAIC's adoption in September 2003 of A Reinforced Commitment: Insurance Regulatory Modernization Action Plan, state regulators are on time and on target to accomplish changes needed to achieve a more efficient system of state-based national insurance regulation in the United States."

In some areas, Mr. Serio said, "our goal is to achieve regulatory uniformity nationwide because it makes sense for both consumers and insurers. In areas where different standards among states are justified because they reflect regional market conditions, we are harmonizing state regulatory procedures to facilitate compliance by insurers and agents doing business in those markets."

Mr. Serio also said that, "Insurance is a complex commercial product that is very much different from banking and securities. Consequently, the process for regulating insurance products must also be different."

He told the panel that, "Current natural disasters, including hurricanes in Alabama and fires in California, highlight the advantages of state insurance oversight."

"State officials," he said, "are in the best position to respond quickly, and to fashion remedies that are responsive to local conditions" because "we are directly accountable to consumers who live in our communities ..."

Moreover, Mr. Serio said, "We strongly believe an effective system of national regulation does not mean federal regulation. Involving the federal government will not simplify the complexity of insurance issues, nor diminish their number, nor smooth the process of regulation.

"Instead, federal intervention in supervising insurance will simply add additional layers of uncertainty, confusion, and cost for policyholders and claimants regarding "who is in charge" of supervising insurance payments when they are most vulnerable to the stresses of life's disasters and personal losses."

Any federal legislation dealing with insurance regulation "carries the risk of undermining state consumer protections through unintended or unnecessary preemption of state laws and regulations," Mr. Serio said.

"Creating an optional federal charter and its related regulatory apparatus would have a serious negative impact on the state regulatory system, including our efforts to make improvements in areas sought by proponents of a federal charter."

Ultimately, Mr. Serio concluded, "a federal regulator would adversely affect state premium taxes and other revenues, which totaled $12.3 billion in 2002."