Optional Federal Charter Bill Introduced

WASHINGTON–Legislation was introduced in the Senate today to create a parallel, federal system of regulation and supervision for insurers as well as agents and brokers that is similar to the dual banking system.

The bill was introduced by Sen. Tim Johnson, D-S.D., and Sen. John Sununu, R-N.H., and is based on legislation introduced by the two in the last session of Congress. The reaction from insurers' groups was mixed.

“The National Insurance Act of 2007″ (S40) makes clear that insurers and producers would both be free to elect federal or state regulation, charters and licenses. Under the bill, states would maintain responsibility of regulating state-licensed insurers and producers.

It would create an independent Office of National Insurance within the Treasury Department similar to those now used to regulate national banks and thrifts. Its commissioner would be appointed by the president for a 5-year term subject to Senate confirmation.

It authorizes the chartering of separate life and property-casualty insurers, but creates a holding company that would provide an umbrella for separate life and p-c insurers.

The bill authorizes the chartering and licensing of national insurance agencies and the licensing of federal insurance producers.

Under the bill, a national agency would be authorized to sell insurance for any federally chartered or state-licensed insurer. A federally licensed insurance producer could sell insurance, including surplus lines of insurance, in any state on behalf of any national insurer or state insurer.

The bill also allows a state-licensed insurance producer to sell insurance on behalf of any insurer, including national insurers, operating within the state in which the producer holds a license.

Unlike the 2006 bill, the latest bill addresses the surplus lines market, clearly defining nonadmitted and surplus lines insurance, and specifically permits nationally licensed agencies to engage in the placement of policies issued by surplus and nonadmitted insurers.

The 2007 bill also removes any reference to health insurance but allows federally licensed insurance producers to sell health insurance offered by state health insurers.

The new bill specifically directs the federal insurance commissioner to establish regulations barring unfair trade and claims practices.

But, addressing the concerns of insurers about certain bills currently being proposed in the House and Senate, it exempts all federally chartered insurers/agencies and federally licensed producers from Federal Trade Commission oversight of their antitrust and unfair trade practices authority.

Cliston Brown, director of federal public affairs for the Property Casualty Insurers Association of America (PCI), said, “It is PCI's hope that the reintroduction of this legislation will spur states to modernize the regulatory environment.”

Joel Wood, senior vice president for federal government affairs for the Council of Insurance Agents and Brokers, predicted that “one way or another, sooner or later, rabid opposition from the protectionists or not, this legislation is going to pass.”

“These are the same issues as when local industry organizations erected layers and layers of regulatory barriers to protect themselves from competition,” he added.

“I'm from the South. General Sherman impressed us Southerners with a few things. When it comes to insurance regulation, it's time for the Confederacy to end. Senators Johnson and Sununu are courageous, foresighted and right,” said Mr. Wood.

Justin Roth, a senior director for federal government relations at the National Association of Mutual Insurance Companies, said, “It makes little sense to introduce legislation that would create a system that the vast majority of companies and agents in the property and casualty world strongly oppose.”

Insurance “reforms can take place at the state level rather than creating an additional layer of federal bureaucracy,” he said.

Charles Symington, Independent Insurance Agents and Brokers of America senior vice president for governmental affairs, said the bill “creates a massive new federal bureaucracy.”

The IIABA, said Mr. Symington, wants targeted federal legislation to reform the state insurance regulatory system such as the surplus lines regulation legislation introduced in March, S. 929, “which would help create uniformity in the surplus lines and reinsurance markets.”

He called change “overdue” and said “virtually every industry stakeholder agrees the existing system can be slow, inefficient and duplicative.”

American Insurance Association President Marc Racicot called the legislation “critical” because it is rooted in free-market principles and “would allow competition to flourish.”

Reinsurance Association of America President Franklin W. Nutter, praised the bill saying, “Reinsurance regulation needs to be harmonized with the global structure of reinsurance regulatory transactions,” adding “An appropriate reinsurance regulatory structure should include a single regulator for reinsurance with national regulatory oversight to achieve uniformity of regulation within the U.S.”