NU Online News Service, April 26, 3:36 p.m. EDT
WASHINGTON–State legislators and regulators are sparring with large insurance companies over whether Congress should create an office within the Treasury Department to monitor insurance activities.
Given that legislation crafted in both houses of Congress calls for creating such an office, the state legislators and insurance companies are lobbying members of Congress even more over how much authority the proposed insurance office would have to preempt state regulators, especially in negotiating trade agreements with foreign countries.
With the Senate expected to decide tonight whether to limit debate on its version of the legislation, the battle is intensifying.
The vote will be on whether to open floor debate on S. 3217, The Restoring American Financial Stability Act of 2010.
On Friday the leaders of the National Conference of Insurance Legislators wrote a letter to all Senate membersurging them to strike a provision to create an Office of National Insurance (ONI). The letter noted that NCOIL's position had the support of the National Conference of State Legislatures and the Council of State Governments for its position.
The language creating ONI in Title V, Subtitle A, of Senate bill, S. 3217, according to the state insurance legislators, "by inserting a federal presence into the regulation of insurance–seeks a solution to a problem that does not exist."
However, officials of an insurance industry trade group, a Washington lawyer for Lloyd's of London and a top official of Liberty Mutual disagree.
In comments made at the annual meeting of the Risk and Insurance Management Society in Boston, Paul Mattera, Liberty Mutual chief public relations officer, asked agents and brokers attending the meeting to lobby their members of Congress against a provision that would make large insurance companies subject to the authority of a Systemic Risk Council that would be created under the legislation.
Mr. Mattera voiced particular concern about a provision of the Senate bill that would allow federal regulators to levy a fee against large insurers that would be used to wind down bankrupt financial services firms that the Council determined posed a systemic risk to the financial system.
Mr. Mattera argued in a video being presented to attendees of the RIMS meeting that such a Council would be dominated by bank regulators. He said insurers already have to pay to wind down troubled insurers through a guaranty system, and that making insurers subject to such federal authority would raise the cost of insurance to both companies and buyers of insurance.
At the same time, Mr. Mattera voiced support for the provision of the legislation creating an ONI, calling it a "step in the right direction," but not a "substitute for legislation creating an optional federal charter for insurance."
As for NCOIL, its letter to all members of the Senate was signed by Kentucky State Rep. Robert Damron, D-Nicholasville., president, and New Mexico State Sen. Carroll Leavell, R-Jai., vice president, among others.
Under S. 3217, the ONI would have the authority to collect and analyze insurance data and prepare a study for Congress recommending to Congress the best ways to modernize the insurance system.
Under the Senate bill, the ONI would also have the power to recommend which insurers should be supervised by the Federal Reserve, and to preempt state laws that it finds "inconsistent with International Insurance Agreements on Prudential Matters."
It would also be given the authority to "perform such other related duties and authorities as may be assigned to the Office by the Secretary."
The letter said state regulators fear such an office "would preempt state law and eventually threaten successful state insurance oversight."
It added, "As has been evidenced and attested to over and over again, and despite the wishes of those who would seek to avoid the protections of state regulation, insurance regulation did not contribute to the crisis and does not need federal intervention."
As to the preemption authority on foreign agreements, David Snyder, associate general counsel of the American Insurance Association, said such authority is essential.
"The U.S. needs a strong national voice to represent the industry on international issues," Mr. Snyder said. "We simply don't have that power today," he said. "That costs premiums to our companies and jobs for the U.S. economy."
Charles Landgraf, a partner at Dewey & LeBoeuf, in Washington, D.C., who represents Lloyd's of London in the U.S., said it is essential that the reinsurance industry have a national presence.
"These issues are inherently global and transnational," Mr. Landgraf said. "They are mixing and matching risks in different markets."
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