Oxley: State Rules Must Change Or Feds Take Over

The two men said the SMART federal legislation for insurance regulatory reform would cut red tape and foster competition

Rep. Oxley told insurers and reinsurers attending the meeting that although the major hurricanes have changed Congress' agenda, the SMART Act is still a priority for his panel.

He explained: "Despite what you may have heard about SMART, it is not the end of state-based insurance regulation. Those are scare tactics coming from people who have, they think, something to lose."

He continued, "In fact, SMART builds on existing state regulatory reform and does not create an optional federal charter or federal regulator."

Mr. Oxley said two major political issues are impacting SMART. The first is the question of how much federal involvement there should be, he said, noting that several powerful industry groups are continuing to push for optional federal charter.

"State groups want no federal presence," he said. "SMART takes the compromise position; it does not create a federal charter or regulator but requires uniformity in several key areas such as agent and company licensing, market conduct and surplus lines."

The second political issue, he said, is competitive pricing. He noted that insurance is the only financial services sector subject to state price controls.

"In the era of federal deregulation of the financial services industry, providing more competition and the like, your industry is the only one that faces price controls," he said, adding that, "Competitive pricing and the elimination of price controls will bring more choices and lower prices for consumers over time."

SMART, he said, is a product of more than 17 committee hearings and roundtables since 2001 on the issue of insurance regulatory reform. The initial SMART discussion draft was released last year for comment.

"Almost every witness that appeared before our committee testified about the glaring need for reforms, including many of the NAIC's recent leaders," he said, noting that as South Carolina insurance commissioner, Mr. Csiszar had been a proponent of SMART.

Mr. Oxley said since Mr. Csiszar's departure the NAIC has recently been openly critical of SMART but has not offered a reasonable alternative "other than the status quo–the status quo is not acceptable." He pointed out that the NAIC and the states have not been successful in implementing uniform reforms and that "critical problems continue to persist."

While he backs state regulation, Mr. Oxley told the group that if no progress is seen and reforms are not implemented, those who are promoting federal regulation will continue to gain strength.

Mr. Oxley said that some states, including Illinois, South Carolina and Ohio, "have taken some progressive moves in that direction," showing that the system works and that competitive pricing is in the best interest of the consumer.

Mr. Oxley said the bill creating SMART will be introduced once a redraft of the titles has been completed. "The process has been slowed by our intense focus on the hurricane issues and response to Hurricane Katrina."

Mr. Csiszar told the audience that PCI will "continue to work on the regulatory front."

"We're launching a major regulatory initiative to do away with some of these rules and regulations that are often under supervision and in fact can be controlled by regulators directly without worrying about any legislation," he said.

Mr. Csiszar, former president of the National Association of Insurance Commissioners, said the "sheer frustration of the system" doesn't come from poor legislation as much as "the fact that you have to file over 350 versions of a rate filing if you want to do it in 50 states–some with pink sheets on top, some with staples, some with paper clips."