WASHINGTON–The House Financial Services Committee yesterday made its first move toward modernizing the insurance regulatory system, approving legislation designed to ease the regulatory burden on surplus lines and reinsurers.
As the committee debated the bill, Rep. Mike Oxley, R-Ohio, the chairman, said it represented "the first step in this committee's journey toward insurance regulatory modernization."
The bill, known as HR 5637 or the Nonadmitted and Reinsurance Reform Act, was passed by voice vote.
The next step is a sequential referral to the House Judiciary Committee, according to Rep. Dennis Moore, D-Kansas, a co-sponsor. That panel will decide whether it will merely support the bill or hold its own review, he said. In any case, lobbyists and congressional staffers said a September vote on the House floor is likely.
The consensus of congressional staffers and industry lobbyists is that the Senate is unlikely to act on the bill this year, although Sen. Richard Shelby, R-Ala., chairman of the panel, earlier this month committed himself to another hearing on insurance regulatory issues in September.
Introduced by Reps. Ginny Brown-Waite, R-Fla., and Moore, the bill would streamline regulation of multistate surplus lines insurance transactions by establishing the insured's home state as the regulator over the transaction. Additionally, that state would be charged with collecting all premium taxes and allocating them accordingly among the involved states.
For reinsurers, the legislation would ensure that states do not interfere with their arbitration agreements, and that ceding insurers in states accredited by the National Association of Insurance Commissioners, or those with regulations similar to requirements for NAIC accreditation, are given credit for the reinsurance of their ceded risk.
Along with Rep. Debbie Wasserman-Schultz, D-Fla., Rep. Brown-Waite noted that insurance problems the bill seeks to address have been keenly felt in Florida, adding that they are being increasingly felt in other states as well.
"This is not just a Florida problem," she said. "What began in Florida is certainly rippling throughout the rest of the United States as well."
The ranking Democrat on the panel, Rep. Barney Frank, D-Mass., offered a note of caution during the proceedings, saying that the committee should not be working to nationalize insurance regulation or to preempt state insurance laws completely. He thanked Rep. Oxley for making significant changes to the bill based on recommendations from the NAIC.
The main alteration to the bill increased the qualifications for a "qualified risk manager" required to be employed by a commercial insurance buyer if that company wanted to seek coverage on the surplus lines market without first going to the admitted market.
Now, the bill requires a "qualified risk manager" to have an advanced degree in risk management, as well as five years of experience and at least one designation showing competency in risk management from an organization such as the American institute for CPCU or the National Alliance for Insurance Education and Research.
Additionally, Rep. Oxley added a mandate for the Government Accountability Office to study the surplus lines market upon passage of the bill to determine, in Rep. Frank's words, "the potential problem of people gaming the system."
The posting of the bill for a vote was likely the last such procedure for Rep. Oxley, who is retiring from Congress at the end of his term this year.
The committee action on the bill drew praise from the Independent Insurance Agents and Brokers of America, which is opposing other legislation to provide for optional federal chartering of insurers.
The group said in a statement that it "believes that the continued state supervision of the surplus lines market is necessary to ensure that the nonadmitted marketplace continues to properly function as a "safety valve" for the overall insurance market for hard-to-place risks. But the lack of a universally applicable tax allocation formula for multistate risks, or for which states' laws govern a multistate surplus-lines transaction, creates conflicting and confusing rules and regulations. That is why the Big "I" strongly supports H.R. 5637."
This article updated 10:05 a.m.
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