SMART And OFC Bills Arriving Shortly

Washington–Legislation modernizing the federal regulatory system and calling for the end of rate regulation will be introduced this spring in both the House and Senate, congressional committee staff said.

They revealed that time table at the Third Annual Insurance Summit, held today in Washington. However, all those participating in the Summit voiced doubt that action on such legislation could occur this year.

Industry lobbyists, congressional staff and Rep. Paul Kanjorski, D-Pa., ranking minority member of the House Financial Services Committee's Capital Markets Subcommittee, made clear that all that is likely to be accomplished this session is that the issue will be positioned for prompt action when the next Congress convenes.

That will include hearings on the issue before the Senate Banking Committee, said. Jamie Burnett, legislative director to Sen. John Sununu, R-N.H.

A Treasury spokesman attending the meeting, Emil Henry Jr., assistant secretary for financial institutions at the agency, also spoke, but declined to indicate whether the Bush administration will support any insurance legislation, or what kind of legislation it will support.

The Senate bill will call for creation of an optional federal insurance charter for both life and property-casualty insurers, said Mr. Burnett. His boss, Sen. Sununu, is the primary sponsor of the Senate bill with Sen. Tim Johnson, D-S.D.

The bill will call for creation of an independent federal regulator within the Treasury Department, similar to that of the Office of the Comptroller of the Currency.

A life insurance industry lobbyist, Gary Hughes, executive vice president and general counsel at the American Council of Life Insurers, said later during the Summit that one advantage of the Senate is that the system will have no impact on the federal budget.

He said the industry has agreed through the legislation to pay the cost of federal regulation through fees–the same system used by national banks–and even to pay the cost of establishing the system within Treasury.

Under the plan, Mr. Burnett and Mr. Hughes said, the state guaranty fund system would remain in place, presumably with the states serving as liquidators for an insolvent federally chartered insurance institution.

In the House, legislation will be introduced calling for creation of so-called federal “standards” or “tools” designed to bring uniformity to state regulation. Such legislation is dubbed the State Modernization and Regulatory Transparency Act (SMART) and has been in the works for several years.

This bill will also include language calling for an end to rate regulation, according to Glenn Westrick, majority counsel on the House Financial Services Committee. Primary sponsors of this bill are Reps. Mike Oxley, R-Ohio, and Richard Baker, R-La., chairman of the committee and chairman of its key Capital Markets Subcommittee, respectively.

The language calling for rate deregulation is not being supported by Democrats on the committee.

Rep. Kanjorski made clear at the meeting that he will “not support” a provision in such legislation eliminating state rate regulation, although he said he is open to modification of current rules regarding rate regulation.

Rep. Barney Frank, D-Mass., ranking minority member of the full committee, has also voiced concerns about provisions ending the ability of states to regulate rates on property-casualty products.

In comments at the summit, Alessandro Iuppa, Maine superintendent of insurance and president of the National Association of Insurance Commissioners, said reform was needed, but that federal involvement would create more problems than it would solve.

Although Mr. Westrick spoke before Mr. Iuppa, he made clear that the House Financial Services Committee, especially Mr. Oxley and Mr. Baker, had become impatient with the NAIC's strong criticism of its proposed legislation and seeming unwillingness to work with the committee to fashion legislation acceptable to both industry and regulators

“Simply saying 'no' to any reform action is not an option,” Mr. Westrick said. “The regulatory system is in dire need of reform.”

Mr. Westrick said that Mr. Oxley is supporting SMART “because he doesn't believe an OFC bill has enough political support.” There is also a concern that an OFC initiative will result in legislation creating a dual regulatory system “with significant Federal Trade Commission involvement,” he added.