A House bill to be introduced before month's end that would create a federal regulator for insurance companies and producers who wish to be supervised by Washington will allow the market to set personal lines rates, according to an outline of the legislation acquired last week by National Underwriter.
The bill is expected to be introduced in the House when Congress returns from the President's Day recess, according to staffers for the authors of the legislation–Rep. Melissa Bean, D-Ill., and Ed Royce, R-Calif.
Under the National Insurance Consumer Protection and Regulatory Modernization Act, "national insurers will be able to set rates at actuarially sound prices," the outline noted.
Under the new law, nationally registered insurers will be required to follow guidelines set by the Office of National Insurance and file their new forms with that entity for review, the outline says. Carriers and insurance agencies will be examined for financial and market conduct, it added.
The bill would also give a systemic risk regulator the authority to monitor insurers. A bill creating a systemic financial services regulator is expected to be introduced by Rep. Barney Frank, D-Mass., chair of the House Financial Services Committee.
The new law would also require federally registered insurance holding companies that have a predominant share of insurance businesses (as determined by the federal insurance commissioner) to be regulated at the holding company level by the Office of National Insurance.
Regarding consumer protections, the new bill will implement model laws covering market conduct approved by the National Association of Insurance Commissioners.
The bill also calls for providing a single telephone number that consumers with complaints or inquiries can call to locate the appropriate federal or state insurance regulator. It will also mandate that "there is a physical office of the Office of National Insurance in every state either through the Office of the Ombudsman or the Division of Consumer Affairs."
It will require nationally registered insurers and agencies to have a consumer liaison that will work with the Division of Consumer affairs to expedite handling of consumer complaints.
In disclosing their plans, Reps. Bean and Royce said that "in advancing this legislation, we believe we can provide a more effective regulatory regime over insurance that will enhance consumer protections, ensure our capital markets are protected from systemic threats within the insurance sector and address many of the problems that have resulted from the fragmented state-based system."
Under the proposed law, states would still be able to assess premium taxes on nationally chartered entities, the authors of the bill state in their outline.
In addition, nationally chartered entities would still be subject to state unclaimed property laws, participation in assigned risk plans and mandatory residual market mechanisms, and follow state laws requiring compulsory coverage for workers' compensation and vehicle insurance.
However, the proposed law will maintain that "if a state guaranty association does not provide policyholders a level of protection equivalent to the NAIC Model standards, a national guaranty corporation would be created for national insurers."
The House sponsors of the bill announced their plans just a day after Treasury Secretary Tim Geithner, in answer to a question at a Senate Banking Committee hearing, said proposals for a federal insurance charter "have a lot of merit, and they will be reviewed carefully."
Mr. Geithner made his comments in response to a question from Sen. Tim Johnson, D-S.D., who has several times in the past been a chief sponsor of legislation in the Senate creating an optional federal charter for insurers.
Specifically, Sen. Johnson said the "largest corporate bailout so far has been an insurance company," referring to American International Group. "Do you believe we can undertake serious market reform without federal regulation of insurance companies?"
In response, Mr. Geithner said: "I do believe an important part of reexamining supervision of financial institutions should include insurance companies."
In a conference call announcing their plans, Rep. Bean said the decision by the Treasury, announced Feb. 8, to not allow insurers to participate in the Capital Purchase Program under the Troubled Asset Relief Program "makes an urgent case for passage of our legislation."
She explained that a likely reason insurers had been rejected for CPP funding was that "the federal government is leery about providing money to institutions it doesn't supervise."
Meanwhile, a separate bill setting federal standards for the regulation of surplus lines and reinsurance will be reintroduced soon by Rep. Dennis Moore, D-Kan., and Rep Scott Garrett, R-N.J., according to officials from the National Association of Professional Surplus Lines Offices.
NAPSLO said they hope the Senate will follow suit and introduce its own version of the Nonadmitted and Reinsurance Reform Act of 2009. "We believe that the bill would make the surplus lines marketplace more efficient by facilitating the payment of surplus lines premium taxes and eliminating unnecessary duplicative compliance requirements on surplus lines multistate risks," said NAPSLO President John Wood.
"We believe that once this legislation is enacted, it will help provide needed uniformity and consistency in insurance regulation at the state level," said NAPSLO Executive Director Richard Bouhan.
While "the problems with financial regulation uncovered last fall were not at the state level," he said "this bill will only improve state regulation of insurance."
The bill would:
o Establish national standards for how states regulate the surplus lines market and reinsurance.
o Create a uniform system of surplus lines premium tax allocation and remittance.
o Establish one-state compliance on multistate surplus lines risks.
o Provide direct access to the surplus lines market for sophisticated commercial purchasers.
"These are concepts long endorsed by NAPSLO and promoted with members of Congress during meetings over the past few years," Mr. Bouhan noted.
Passage of the surplus lines bill seems more likely in this session of Congress, but what form the legislation will take remains a question, according to a Council of Insurance Agents and Brokers official.
"We are highly optimistic we will be able to pass the legislation," said Joel Wood, CIAB's senior vice president of government affairs, during a press conference to kick-off the group's annual Legislative Leadership Summit in Washington, D.C.
Mr. Wood said significant opposition to the bill has been removed in the House, addng he is confident it will pick up where it left off last year, when it passed the House but failed to make it out of committee hearings in the Senate.
Calling passage of the surplus lines bill CIAB's "number-one priority," Mr. Wood said that as for its final form, "you never know. You look for your opportunities [for passage]. We will take it any way you can get it, but it is a little early to project what the vehicle is going to be."
(Additional reporting by Mark E. Ruquet.)
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