OFC House Bill Introduced

WASHINGTON–Companion legislation to a Senate bill creating an option federal charter for insurers was unveiled in the House today.

Rep. Melissa Bean, D-Ill., and Rep. Ed Royce, R-Calif., introduced the bill. They said they had won a commitment from the Democratic leadership of the House Financial Services Committee to hold hearings on the legislation soon. The bill is titled The National Insurance Act of 2007. The Senate measure was introduced in May.

The OFC legislation has garnered support from 11 financial institution trade groups, including the American Insurance Association, the Council of Insurance Agents and Brokers, and the Reinsurance Association of America.

But the National Association of Mutual Insurance Companies and the Independent Insurance Agents and Brokers of America reiterated their steadfast opposition.

In a statement issued as the bill was introduced, Rep. Bean said, “Regulatory obstacles currently discourage insurance innovation and nimble product development to capitalize on emerging growth markets.”

She added, “Eliminating the need to coordinate with 51 state regulators and accelerating the time to market potential will foster greater industry innovation and agility.”

Both Ms. Bean and Mr. Royce said the current state-based regulatory system for insurance had created a $24 billion negative trade deficit in insurance markets in 2006.

They noted that banks, which have a group of federal regulators, have a substantial positive trade position.

Their legislation creates a federal system of regulation and supervision for insurers as well as agents and brokers that is similar to the dual banking system.

Under the bill, insurers and producers would both be free to elect federal or state regulation, charters and licenses, and states would maintain responsibility for regulating state-licensed insurers and producers.

Unlike legislation introduced in the Senate in 2006, 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 bill, like its Senate counterpart, specifically directs the insurance commissioner to establish regulations barring unfair trade and claims practices.

It also states that national insurers, as a general rule, must belong to the state guaranty association in each state in which they offer insurance.

The bill also says that if a state guaranty association does not provide policyholders with a level of protection equivalent to National Association of Insurance Commissioners model standards, a national insurer would be required to join the National Insurance Guaranty Corporation created under the law.

This corporation would have separate accounts for property-casualty insurance and life insurance, and similar to state guaranty funds, would be post-funded with assessments of its member companies.

The most controversial provision of the legislation would eliminate rate regulation, a deep concern for Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee. Rep. Frank on numerous occasions said he would support exemption from rate controls for life and commercial property-casualty writers but not for personal lines of business.

In its comments, Justin Roth, NAMIC senior federal affairs director, said “NAMIC remains steadfastly opposed to an OFC.” He added, “There is nothing to be gained, except more bureaucracy and confusion for insurance consumers.”

The IIABA in its comments said that rather than creating a massive new federal bureaucracy under an OFC, it instead supports targeted federal legislation to reform the state insurance regulatory system, which relies on the over 100 years of skill and experience of states as insurance regulators.

IIABA officials cited as an example of such a pragmatic approach H.R. 1065, the Nonadmitted and Reinsurance Reform Act of 2007, which passed the House by voice vote last month. The legislation would help create uniformity in the surplus lines and reinsurance markets.

“We share the belief held by virtually every player in the insurance market that there needs to be reform of the existing regulatory system,” said Robert Rusbuldt, IIABA chief executive officer, but he added “creation of a new federal bureaucracy is not the answer.”