Legislation that would establish a federal Office of Insurance Information has won the qualified support of state insurance regulators, but state legislators raised a number of concerns at a Capitol Hill hearing last week.
At a hearing of the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, Illinois Insurance Director Michael McRaith said the legislation–introduced by Subcommittee Chair Paul Kanjorksi, D-Pa.–has won the "conditional support" of the National Association of Insurance Commissioners, provided that the powers granted to the proposed OII are not expanded any further.
The legislation–known as the Insurance Information Act, or HR 5840–would establish an insurance information office within the Treasury Department to provide needed expertise to the federal government on insurance issues, as well as work with the U.S. Trade Representatives in dealing with other countries.
Mr. McRaith said the NAIC would like to see some parts of the legislation clarified–specifically regarding the definitions of certain terms and the language of a provision that would allow the secretary of the Treasury to stay the preemption of state laws that may run afoul of U.S. trade policy.
"Our conditional support," Mr. McRaith added, "also hinges on the proposal not changing in ways detrimental to insurance consumers as it winds its way through the legislative process."
The legislation, as currently drafted, includes a provision establishing an "advisory group" within the proposed OII and specifically provides that the NAIC would play a primary role in that group.
This provision drew the ire of Rhode Island State Representative Brian Kennedy, D-Hopkinton, who testified on behalf of the National Conference of Insurance Legislators as the group's president.
"While acknowledging that the NAIC is a repository for insurance information, NCOIL believes that giving such a primary role to the NAIC in the OII Advisory Group allows the tail to wag the dog," he told the committee, adding that "four-fifths" of state insurance commissioners are gubernatorial appointees.
Mr. Kennedy also quoted the words of Alabama Commissioner Walter Bell, a former NAIC president, in saying that the NAIC is not a governmental body and has no regulatory authority.
Should the bill be enacted as drafted, he said, "this would be a dramatic enhancement of the authority for this nongovernmental entity known as the NAIC, which comes at the expense of the state officials to whom they are accountable."
Mr. McRaith noted that the legislation provides for a number of as yet unfilled positions in the advisory group, and that NCOIL could fill at least some of those seats at the table.
When asked by Rep. Kanjorski if establishing a role specifically for NCOIL within the group would assuage their concerns, Rep. Kennedy said that doing so "would probably help us a little bit" toward supporting the concept of a federal OII.
Stronger criticism of the legislation came from one of the committee members–Rep. Donald Manzullo, R-Ill., who said he was "astonished" by Mr. McRaith's testimony, and warned that the legislation would only serve to move the industry closer to a federalized regulatory system.
"That's how this place works," he said, explaining that a proposal such as the OII legislation was the "soft punch," to be followed later by a much stronger action.
"This is an attempt to federalize [regulation of] the insurance industry," Rep. Manzullo said. "That's all it is."
Mr. McRaith said his comments were a "good faith" response to a request by Rep. Kanjorski to measure the substance of HR 5840, adding he was commenting on this specific legislation and not something that might be put forth in the future.
Rep. Melissa Bean, D-Ill., also had the future in mind, but in a more positive sense.
One of the supporters of the OII legislation, and of legislation establishing an OFC, Rep. Bean noted that while she and Mr. McRaith might differ on the need for a federal insurance regulator, his record and expertise on insurance issues "would make him an ideal candidate for the role" of a federal insurance regulator.
While those representing the states were divided on their support for the proposal, the federal executive branch was strongly supportive of the bill.
Deputy Assistant Treasury Secretary Jeremiah Norton told the panel that the creation of an OII under the bill was very similar to a recommendation made in the Treasury's recent "blueprint" for reforming the financial services regulatory system.
What concerns the Treasury had, he added, were largely matters of clarification, and were in his view "very bridgeable."
Aside from the role played by the NAIC, another major concern for those testifying before the committee was the authority the OII would have to preempt state laws that run counter to international agreements.
Both Mr. McRaith and Rep. Kennedy expressed their concerns on the issue that federal preemption should be limited and kept as narrowly defined as possible.
For those within the industry itself, the discussion was somewhat more conflicted.
A main concern expressed by property-casualty as well as life insurers was that the preemptions–designed to ensure that foreign firms are not subject to discriminatory treatment–do not inadvertently end up with those firms receiving better treatment than domestic companies.
"We believe preemption is appropriate in the context of this bill, but we also believe the preemption language must be carefully crafted in order to avoid consequences that neither the industry nor Congress intend," said Stephen Rahn, vice president and associate general counsel for the Lincoln Financial Group, who testified on behalf of the American Council of Life Insurers.
Neal Wolin, president and chief operating officer of property and casualty operations for the Hartford Group, expressed a similar concern on behalf of the American Insurance Association.
In refining the bill from its original version, Mr. Wolin noted that the preemption was narrowed to block only those measures that would cause a jurisdiction to treat a non-U.S. insurer "less favorably" than a domestic company.
"Preemption should be exercised to ensure that all insurers are subject to the same standards and compete on an equal basis," he said.
On a practical level, the process of how preemption would be established was a concern for David Sampson, president and chief executive officer of the Property Casualty Insurers Association Of America.
"This bill would, for the first time, give this potential federal entity preemptive authority over state insurance laws as an administrative process rather than as a legislative one," he said.
Given that preemptions are tied into treaties, he noted, the fact that the United States does not have treaties in force with every country could lead to state laws being preempted in some cases but not others. "Thus, preemption may not apply equally in all states or to all policyholders," he said.
Preemption, as outlined in the bill, did receive the strong support of the Reinsurance Association of America, with the RAA's senior vice president and general counsel, Tracey Laws, calling the provision "critical" to ensuring that U.S. policy on international issues is applied uniformly throughout the country.
"To do otherwise would perpetuate the current patchwork system of regulations and undermine the ability of the U.S. to effectively participate in the international arena, including in the ability to reach international agreements on insurance policy issues," she said.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.