IIABA Opposes OFC While Two Big Insurers Applaud Move

"This is not a reform bill, it is a deregulation bill–aimed at stripping the states of insurance oversight authority and denying consumers the time-tested protections that regulatory power provides.

"If passed, this bill would allow nearly any function of the so-called national insurance regulator to be carried out by self-regulatory industry groups, effectively handing the keys of supervision over to those being supervised. Akin to letting the fox guard the henhouse, this bill would essentially dismantle existing state-based consumer protections."

The Alexandria, Va.-based Independent Insurance Agents & Brokers of America issued a statement saying it "strongly opposes" the measure introduced in the House by Rep. Melissa Bean, D-Ill., and Rep. Ed Royce, R-Calif., titled the National Insurance Consumer Protection Act.

At the same time, Bloomington, Ill.-based insurer State Farm and Northbrook, Ill.-based Allstate said they support the bill.

"While it has an appealing title, this latest incarnation of optional federal charter legislation would damage the stable and healthy insurance marketplace to the detriment of consumers," said Robert A. Rusbuldt, IIABA's president and chief executive officer.

He said the reintroduced bill has a few changes, but it remains the same concept–optional federal insurance charter and deregulation of "strong state consumer protections."

"There is no doubt the current regulatory system needs more uniformity and efficiency, but there are more prudent ways to accomplish this via targeted federal legislation," Mr. Rusbuldt noted.

In support of the bill, Mike Fernandez, State Farm vice president of public affairs, said in a statement that the bill "would provide important consumer benefits by establishing a uniform, competition-based regulatory framework, which would bring consistency and efficiency. The nation's current state-based regulatory system makes serving insurance customers complicated, costly and cumbersome."

Allstate Chairman, President and Chief Executive Officer Thomas J. Wilson said in a separate statement that the current state-based system is "cumbersome and ineffective in managing risks in an era of rapid change and innovation."

He said American families need "better protection from systemic risk" and that this bill would follow the actions of the U.S. Treasury, Federal Reserve, Congress and the FDIC to reform financial services.

"Our regulatory infrastructure has simply not kept pace with the level of innovation in the financial markets and the growing risks embedded in financial products," he added.

Charles E. Symington Jr., senior vice president for government affairs for the IIABA, said consumers in fact would be harmed by the bill because carriers could choose their own regulator for their benefit.

According to a fact sheet distributed by Reps. Bean and Royce, the bill would establish a "parallel, national system of regulation and supervision for insurers, insurance agencies and insurance producers, similar to the dual banking system" (see NU Online News, April 2, "House Bill Submitted To Create Federal Insurance Charters).

Insurers could choose their regulator, but if officials determine a carrier is "systemically important" it could be required to be insured nationally.

The Council of Insurance Agents & Brokers, the American Bankers Association, the American Bankers Insurance Association, and the Financial Services Roundtable all expressed support for the bill.

The American Insurance Association also supported the bill, but had reservations over parts of it concerning the setup of a federal guaranty fund while still keeping state funds in place.

The Property Casualty Insurers Association of America said the focus right now should not be an overhaul of the entire financial regulatory system. Instead, the focus should be on systemic risk.

The National Association of Mutual Insurance Companies said it opposed the bill because it would create "a huge new bureaucracy that would have broad, ambiguous powers."

But Franklin W. Nutter, president of the Reinsurance Association of America, expressed support for the legislation. The global nature of reinsurance, he said, "demands a federal role in regulation to ensure U.S. reinsurers can compete in the global marketplace," adding that the "inefficiencies of the current state-based system of regulation are growing more pronounced as our business becomes increasingly global."