Momentum Grows In Congress For Shift

According to several ACLI lobbyists attending the meeting, Rep. Frank said he intends "to move very quickly with OFC legislation in the next Congress." He specifically said it would cover both life and property-casualty insurance.

Rep. Frank said it would be a "very broad proposal," according to one attendee, and that action on an OFC bill would be "front and center in 2009," according to another attendee.

Rep. Frank also warned that "the first bill will be the best bill," adding that lobbyists can read that as meaning "whatever you want in the bill, it should be in the first bill introduced," the latter attendee noted.

A staff official from Rep. Frank's office confirmed that he met with ACLI lobbyists but would not comment further.

Besides announcing the June 10 hearing, Rep. Kanjorski also released proposed modifications to his bill–with at least two provisions prompting industry resistance.

The revised language seeks to put to rest concerns voiced by officials of the National Association of Insurance Commissioners and supporters of continued state regulation that the bill as introduced would give the Treasury broad authority to preempt state regulation of insurance.

The proposed revision would give the Treasury secretary the authority to stay a preemption of state regulation if an inconsistency is created with state oversight in an official international agreement entered into by the United States, according to a legal analysis of the proposed changes by one insurance trade association attorney, who would not release the document unless his name was withheld.

In addition, at the request of the NAIC, the staff of the Capital Markets Subcommittee added provisions allowing the Office of Insurance Information that would be created under the bill to contract with the NAIC to provide the data it collects on balance sheet and market conduct activities of the insurance industry.

To address industry concerns, the revised language adds a fairly broad privacy provision that would give any data at least the same level of confidentiality protection that the information enjoyed when it initially was submitted, according to the industry legal analysis obtained by NU.

Insurer groups expressed concern about adding NAIC data collection to the mix. The industry is battling with the NAIC over its authority to collect market conduct information for a central database, with concerns cited over access to the data by class-action attorneys and insurance competitors (see NU, June 2, page 6.)

"The bill creates a role for the NAIC that we had not heretofore considered, and we need to evaluate such a proposal very carefully," said Cliston Brown, a representative of the Property Casualty Insurers Association of America. "We are in the process of reviewing it very carefully at this time."

Besides the data collection issue, industry officials are also leery of a provision to add a representative of the Federal Trade Commission as a mandatory member of a board that would advise the Treasury secretary on insurance-related issues. The industry has knocked heads with the FTC over credit scoring and market conduct disputes.

Insurers note that under current federal law, the FTC has little legal standing, and most in the industry would like to keep it that way. The McCarran-Ferguson Act–the 1944 law that grants regulatory authority over insurance to the states–exempts "the business of insurance" from federal antitrust laws to the extent that insurance is regulated by the states. The FTC was also barred through a provision in 1980 from investigating insurance companies unless it is authorized to do so by Congress.

The FTC is working with Congress in evaluating whether the use of credit scores in setting auto and homeowners insurance rates is inherently biased against minorities. (Two bills now under consideration in the House would ban the use of credit scores in setting personal lines rates.)

Industry representatives last week criticized the NAIC during a panel discussion at the quarterly NAIC meeting in San Francisco over testimony about credit scoring several weeks ago before Congress by Florida Insurance Commissioner Kevin McCarty. Industry representatives said Mr. McCarty expressed a minority viewpoint not reflective of the majority of the commissioners' home states.

In general, however, property-casualty insurance lobbyists voiced support for creating the new office within Treasury.

"There is an immediate need for someone at the federal level to collect, analyze and interpret publicly available data on insurance-related issues," said Blain Rethmeier, a representative for the American Insurance Association. "We don't have that now and it's absolutely critical, especially when it comes to international and federal policy matters."

Justin Roth, a senior director for federal affairs at the National Association of Mutual Insurance Companies, added that "while we have not reviewed the managers' amendment in full, we are encouraged by many of the changes in the draft."

Mr. Roth said one of NAMIC's greatest concerns is that establishing an OII would lead to dual regulation, stemming from the office's preemptive powers. "The latest draft addresses that concern with specific language that states the preemptive powers would be stayed by the [Treasury] secretary in any circumstance in which the preemption would lead to any federal regulatory authority," he added.

Joel Wood, senior vice president for government affairs at the Council of Insurance Agents and Brokers, also voiced support for the OII bill.

"We continue to believe Rep. Kanjorski's approach, with its modifications, is the appropriate one, and pretty difficult to argue with from the standpoint of the need for a federal seat at the table in an international marketplace," he said. "I guess the big question is whether enactment of his bill would be the beginning of federal preemption, or the end of it."

However, he added, "for a presidential election year in which there were few congressional prospects for a big debate on insurance regulation, this sure has gotten a lot more interesting than most of us expected."

Also reflecting the growing momentum to centralize insurance oversight in Washington, Catherine Weatherford, executive vice president and CEO of the NAIC, sent a memo on May 28 to insurance commissioners and the staff of the Kansas City, Mo.-based organization, announcing she is considering moving her office to Washington, D.C.

She said she is contemplating the move because "having a stronger presence in Washington, D.C., will enhance the NAIC's availability and access to consumer organizations, the U.S. Congress and industry trade associations."

She said the proposed change "would otherwise have little impact on our operations in Kansas City," adding that "the NAIC membership, as part of its strategic management process, has a strong vision for designing options and implementing solutions for stronger, more uniform regulatory models in the future."