Insurance Groups Seek Governor Backing In Battle Over Optional Federal Chartering

"Your unequivocal commitment to the state system and opposition to proposals for the creation of a federal insurance regulator are welcomed by our broad membership, by many others within the industry and, most importantly, by insurance consumers," said IIABA's chief executive officer, Robert Rusbuldt.

"Despite the long success of state insurance regulation, the system is once again under attack from opponents who would like to establish an unprecedented and untested federal insurance bureaucracy," Mr. Rusbuldt said. "Legislation creating such an entity has once again been introduced in Congress, and the well-funded proponents of this concept are aggressively pursuing its adoption."

The Minnesota Independent Insurance Agents and Brokers sent a similar letter, because the current president of the NGA is Tim Pawlenty, governor of that state.

"Establishing a federal insurance regulator would threaten the continued viability of state insurance regulation and the important consumer protections currently in place here in Minnesota, and we thank the NGA and other organizations of state officials for your continued opposition to such ideas and your leadership in this arena," wrote Dan Riley, state executive from the MIIAB.

"The MIIAB joins you in your forceful and principled opposition to these ill-conceived proposals," Mr. Riley added.

In addition, Donna Pile, president of the National Association of Professional Insurance Agents, also sent Gov. Pawlenty a letter voicing opposition to an OFC.

"We join you in opposition to the federal regulation of insurance," Ms. Pile said. "We agree with your assessment of the pitfalls associated with a federal insurance regulator as you presented them" in the joint statement with the National Conference of State Legislatures, she added.

"The federal oversight called for by the National Insurance Act would create confusing legal questions as to who really regulates the insurance industry, thus directly undermining and interfering with the states' right and obligation to regulate the business of insurance," Ms. Pile said.

"The bill would stifle open competition by insurers and exclude small-to-midsize insurers from the market by creating an atmosphere that favors large national and international corporations, which would inevitably result in fewer choices for consumers," she concluded.

However, in their letter to the NGA, AIA and ACLI asked the governors to reconsider opposition to optional federal charters for insurers and support legislation creating a regulatory system similar to the federal/state system that regulates banks.

The two groups cited the competitive advantages of an OFC while reassuring the governors that the legislation, as introduced this year in both houses of Congress, "will allow states to collect premium taxes on insurance transactions just as they do today."

The letters were signed by two former governors turned insurance trade group presidents–AIA President Marc Racicot (former governor of Montana) and ACLI President and CEO Frank Keating (former governor of Oklahoma).

The last NGA policy statement on the issue was made in October 2006 in conjunction with the National Conference of State Legislators. It was issued in response to legislation introduced in the Senate that would create an OFC. The bill has since been reintroduced in the new Congress.

The 2006 letter said the two state government groups oppose the bill because it would "radically restructure the current system of insurance regulation by installing a new federal regulator, creating a massive new federal bureaucracy in Washington, and permitting insurance companies to 'opt out' of comprehensive state oversight and policyholder protection."

It argued that "states are better positioned than the federal government to balance the interests of U.S. insurance consumers with that of commercial competition."

However, the letter from Mr. Racicot and Mr. Keating contends that "the success of the insurance industry–a major revenue producer for state governments–depends on the existence of a modern and efficient regulatory system that reacts quickly to rapid changes in the marketplace and provides efficiencies and convenience to customers."

The letter added that "the insurance regulatory reform legislation under consideration on Capitol Hill in both the House and Senate provides for such a system."

The letter cited support for such a regulatory system from a McKinsey & Company study sponsored by U.S. Sen. Charles Schumer, D-N.Y., and New York City Mayor Michael Bloomberg, as well as from a separate study on capital markets commissioned by the U.S. Chamber of Commerce.

"As former governors, we have the utmost respect for the role of states in the nation's political and economic landscape," the letter said. "We have spared no efforts in working with the states to advocate for needed reforms of insurance regulation. But, while there has been some progress, it has come about much too slowly."

The letter also said the stimulus provided by an OFC system can help states accomplish their goal of reforming the insurance regulatory system.

"An OFC system will encourage states to achieve long-delayed uniformity and thus make state charters an attractive alternative to a federal charter," the letter said.

The next day, the leadership of the National Conference of Insurance Legislators issued a letter urging the NGA to continue opposing OFC legislation for insurers.

NCOIL said the letter from AIA and ACLI urging the governors to change their stance contained "ill-advised recommendations." The letter from state lawmakers challenged "the notion put forth in the ACLI/AIA letter that a dual charter 'regulatory system reacts quickly to rapid changes in the marketplace and provides efficiencies and convenience to consumers.'"

The NCOIL letter mentioned the costs of a federal insurance bureaucracy that would be established under S. 40/H.R. 3200, the National Insurance Act of 2007.

NCOIL said that "an OFC would set up a bifurcated regulatory system for insurance, put at risk important state revenue, nullify critical state-initiated consumer safeguards, and delay and deny important consumer access and recourse in problem times."

Further, the NCOIL letter recognizes a recent statement from the Coalition Opposed to a Federal Insurance Regulator, in which it noted the "insurance industry is sharply divided on the issue of a federal insurance regulator" and that a clear majority of the tens of thousands of consumers surveyed by COFIR is opposed to OFC legislation.

The NCOIL letter also noted what it said was the success of the Interstate Insurance Product Regulation Compact that benefits insurance consumers in its 30 member states.

NCOIL said the IIPRC seeks to "bring innovative products to market much more quickly," as requested by the ACLI and AIA in their letter, and said the compact would allow insurance companies "to make one central filing with the IIPRC and offer approved products in all IIPRC member states."

NCOIL added in the letter that its leadership looks forward to discussing the issue further with the NGA, as the two groups share a common goal–that of "protecting insurance consumers and encouraging a thriving marketplace in our states."