Battle Lines Drawn Over Bill To Give Treasury Dept. Insurance Regulatory Role

The battle lines began to take shape last week over legislation to create a federal insurance “information office” within the Treasury Department, in what promises to be a tough fight over what might be the first step toward an optional federal charter.

The first shots were fired in a statement by the president of the National Conference of Insurance Legislators, Rhode Island State Rep. Brian Kennedy, D-Hopkinton, voicing “concern” with the Insurance Information Act of 2008.

H.R. 5840 was introduced earlier this month by the chair of the Capital Markets Subcommittee of the House Financial Services Committee, Rep. Paul Kanjorski, D-Pa. The concept of the bill was proposed in Treasury's March 31 release of a “Blueprint for a Modernized Financial Regulatory Structure,” recommending that Congress immediately establish an Office of Insurance Oversight and strongly backing an optional federal charter.

When the blueprint was unveiled, Rep. Kennedy voiced opposition to its recommendations on insurance regulation. Last week, Rep. Kennedy added that by creating a new federal insurance office, Congress would in effect be preempting long-established state structures.

“NCOIL questions what the future would hold for successful state mechanisms–including the National Insurance Producer Registry and the National Association of Insurance Commissioners accreditation program for financial solvency–after a federal insurance office is established in Washington, D.C.,” Rep. Kennedy said.

“None of my constituents has ever called, e-mailed or even verbally communicated to me that the insurance industry is broken and that the best approach to reform is an Office of Insurance Information,” he added. “Congress should think carefully before wielding a big-stick approach to solving a problem that merely needs tinkering.”

But Joel Wood, senior vice president of government affairs for the Council of Insurance Agents and Brokers, disagreed. “It's very difficult to say the states are getting the job done when state legislators place so little value on the efforts by the NAIC to achieve consensus–the kind of consensus that might otherwise avert a federal role,” he said.

To illustrate problems with state regulation he cited recent data indicating that of the six model laws passed by the NAIC over the past two years, three have failed to be enacted anywhere, while one has been enacted only in a single state.

NCOIL, he said, “would have more credibility on this subject if it had a track record of following through on enactment of model laws where the commissioners have struggled to achieve harmony,” adding that “the facts are abysmal on this front.”

“Reasonable people can disagree about the need for, and scope of federal intervention in insurance regulation,” said Mr. Wood, adding that CIAB officials, while disagreeing with the NAIC, “greatly respect the work the commissioners are trying to do.”

Voicing a view similar to that of NCOIL, the National Association of Professional Insurance Agents also said it opposes the Insurance Information Act.

“This bill is yet another piece of legislation that is designed to advance federal regulation of insurance, which PIA adamantly opposes,” said Len Brevik, the group's executive vice president and chief executive officer.

“Far from being benign, as its title suggests, the Office of Insurance Information would have broad authority to preempt state laws and set national insurance policy,” Mr. Brevik said. “It is, in fact, a federal insurance regulatory agency.”

He said that “calling it an 'information office' is a misnomer,” adding that the bill sets up a dual system of regulation that is not optional.

However, Blain Rethmeier, senior vice president for public affairs at the American Insurance Association, said PIA's concerns about “regulation by decree” are overblown.

“Unlike the state insurance regulators, who can regulate by decree via issuance of regulations, H.R. 5840 would only provide a very narrow window to the Secretary of Treasury to enforce international agreements,” Mr. Rethmeier noted.

He said anyone “actually familiar” with the long history of the Treasury Department and the U.S. Trade Representative in negotiating favorable international agreements for U.S. financial service providers “would welcome this authority.”

Mr. Rethmeier said the long list of free trade agreements, Bilateral Investment Treaties and tax agreements negotiated by the U.S. government “demonstrate a very measured, prudent approach with the unwavering goal of helping U.S. financial companies remain competitive internationally.”