A U.S. Reinsurance Bill With A Twist

"We aggressively support Sen. Sununu's vision for insurance regulation, and passage of the NRRA won't inhibit that effort," Mr. Wood said. "It is far, far too early to predict any outcome, but we are appreciative of the opportunity to make our case before thoughtful senators on both sides of the aisle."

Countering the comments of OFC supporters, Justin Roth, a senior federal affairs director for the National Association of Mutual Insurance Companies, said: "We agree with Sen. Sununu that Congress can play a tremendous role on surplus lines and reinsurance legislation, which the entire insurance industry supports."

At the same time, Rep. Paul Kanjorski, D-Pa., chairman of the Capital Markets Subcommittee of the House Financial Services Committee, announced he will hold the second of what is expected to be three hearings this year on insurance regulatory reform next Tuesday. No list of witnesses was provided.

This hearing will continue to review the need to improve insurance regulation, Rep. Kanjorski said.

Sen. Sununu's comments were made at a meeting sponsored by the American Council of Life Insurers to unveil a new study on how an optional federal charter would increase competitiveness, efficiency and innovation within the financial services industry.

It had been known that Sen. Jack Reed, D-R.I., had been working with industry representatives and planned to introduce companion legislation soon to surplus lines and reinsurance legislation passed July 23 by the full House.

H.R. 1065–the Nonadmitted and Reinsurance Reform Act of 2007–gives the home state regulator of the insurer primary oversight of multistate surplus lines risks.

Under the House bill, the home state regulator would also be responsible for allocating any taxes collected on the coverage to the other involved states. The legislation makes it easier for sophisticated purchasers to access the surplus lines market.

An ACLI official said the life industry is interested in securing improvements to the reinsurance provisions contained in the House bill but would not elaborate.

Sen. Sununu said he is working on the nonadmitted and reinsurance bill "because he sees a real and obvious need for changes in the insurance regulatory structure, which is currently primarily state-based. The "fragmented regulatory structure for insurance," he said, presents obstacles to the efficiency of an industry that is both national and global in scope.

He said the current regulatory structure for banks, which offer both state and national charters, has improved competition within the industry and allowed the banks to better serve consumers.

A nonadmitted and reinsurance measure, S. 929, was introduced in February by Florida Sens. Bill Nelson, D, and Mel Martinez, R, as part of a package of bills designed to deal with the homeowner's insurance crisis in that state.

But the Nelson/Martinez bill does not contain a provision added to the House bill this year that is important to the Risk and Insurance Management Society, the only consumer group who represents the corporate buyers of surplus lines insurance.

This provision contains a definition of a "sophisticated insurance purchaser" that is much more palatable to RIMS members than last year's bill.

The study unveiled at the ACLI meeting found that a well-structured optional federal regulatory system would increase competitiveness, efficiency and innovation in the life insurance industry, according to a new study.

The study–"The Effects of an Optional Federal Charter on Competition in the Life Insurance Industry"–was conducted by Professors Martin F. Grace and Robert W. Klein of Georgia State University's Center for Risk Management and Insurance Research. The study was commissioned by the ACLI.

The study found that an optional federal chartering system such as the one proposed in S. 40 and H.R. 3200 would reduce regulatory barriers that inhibit life insurers from achieving their full potential.

"While state regulators have sought to increase the efficiency of their policies and processes, the state system may still be hampering life insurers' ability to compete on an even playing field with other financial institutions (that are federally regulated) and offer an optimal array of products at the lowest possible cost to better serve consumers," the study said.

In releasing the study, Frank Keating, president and CEO of the ACLI, also noted that an earlier study commissioned by the ACLI projected that life insurers could save $5.7 billion annually in compliance costs if they dealt with a single regulator as opposed to today's system of multiple regulators.