For almost a year now, Congress has been acting favorably on many of the issues important to independent insurance agencies. The question is, how long will this last?
The list of legislative victories to this point has been impressive. Some of the wins include the following:
- In January of 2015, Congress voted overwhelmingly to renew the Terrorism Risk Insurance Act and created the National Association of Registered Agents and Brokers.
- A bipartisan bill, the Protecting Affordable Coverage for Employers Act, which enables the states, as the regulators of insurance, to keep the current definition of a "small group market" in health insurance at 50 or fewer employees was passed and became law in October 2015.
- The Policyholder Protection Act was introduced. It prohibits federal regulators from using assets designated to pay out insurance claims to "prop up" an affiliated bank.
- A nationwide grassroots campaign by crop insurance agents and their allies induced Congress to reverse a planned $3 billion cut to the federal crop insurance program.
- A two-year delay of the "Cadillac Tax," a 40% tax on certain employer-based health plans, was included in the year-end "omnibus" appropriations funding measure.
While this independent agency winning streak was being compiled, something else was mercifully absent: attempts to enact measures that would lead to a federal takeover of insurance regulation from the states.
You will recall that it was just a few years ago when a handful of lawmakers from both parties were aggressively pushing such proposals as an optional federal charter for insurers and producers, which they said would be the first step toward federal insurance regulation.
Former U.S. Sen. Ben Nelson (D-Neb.) said during an interview with National Association of Professional Insurance Agents in January 2016 that the challenges the insurance industry faces from Congress now are fewer. He is more concerned with some of the "alphabet" federal agencies such as the Treasury Department and the Federal Reserve trying to be more active in insurance, something he says state regulators will have to push back against. He also indicated that the Federal Insurance Office should continue to be limited to information gathering and dissemination.
Nelson, who is also a former National Association of Insurance Commissioners CEO, said the biggest threat he sees now is from the international side, with the Financial Stability Board and the International Association of Insurance Supervisors trying to dictate to the United States how it should handle the regulation of insurance.
"It's going to be a long slog," Nelson said at the time. "We're going to have to keep pushing back against it. That's the biggest threat that I see right now."
Standoff with Europe
This was a particularly prescient observation, as the United States and the European Union are now in something of a standoff over whether the EU will grant equivalency to U.S. insurers under Solvency II, without also trying to enact changes to our regulatory system. That is a real possibility, according to Nelson.
The NAIC, along with most carriers, has taken a strong stand against such a scenario. From the commissioners' perspective, complying with EU Solvency II complicates and confuses U.S. carriers' accounting, causes them to be non-compliant with U.S. insurance and SEC rules, and results in a lesser standard of care. This is why the commissioners strongly support a direct grant of equivalency. NAIC President and Missouri Insurance Director John Huff said the European Union should grant equivalency that would allow insurers to participate in international markets under the new system, even without a negotiated covered agreement; the NAIC opposes the creation of a covered agreement.
Unfortunately, FIO Director Michael McRaith is trying to negotiate such a covered agreement, rather than advocating for a straightforward grant of equivalency. The problem with a covered agreement rather than equivalency is that a covered agreement increases the likelihood that the feds will use these talks as an excuse to negotiate away portions of our state regulatory system. Huff has indicated he will remain engaged in the discussions to ensure that doesn't happen.
As former NAIC President and Louisiana Insurance Commissioner Jim Donelon put it, "We're not here to cooperate with European colleagues. We're here to promote the best regulatory system in the world for insurance, not to compromise it and the market we regulate."
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The Flood insurance question
Back on Capitol Hill, House legislation is being developed, but has not yet been introduced at the time of this writing that would require transparency and public comment for international insurance negotiations and require U.S. negotiators to emphasize the importance of keeping in place the current state-based system of insurance regulation.
In the meantime, the idea that legislative progress on insurance issues would come to a complete halt as a result of the presidential election campaign has proven a bit overblown. Things have slowed down, but progress is still being made.
In March, the House Financial Services Committee approved the bipartisan Flood Insurance Market Parity and Modernization Act (H.R. 2901) sponsored by Reps. Dennis Ross (R-Fla.) and Patrick Murphy (D-Fla.), which would clarify that private insurance is to be treated the same as federal Flood insurance in cases in which homeowners with federally backed mortgages are required to buy the coverage.
The bill is an attempt to encourage the development of a private Flood insurance market with strong consumer protections being overseen by state insurance regulators. A senate companion bill, S. 1679, introduced by Sens. Dean Heller (R-Nev.) and Jon Tester (D-Mont.), awaits action.
The National Association of Professional Insurance Agents opposes the immediate privatization of the National Flood Insurance Program, but supports sensible solutions for encouraging the growth of the private Flood insurance market with measures like H.R. 2901. In addition, we support the long-term reauthorization of the NFIP when it comes up for renewal in 2017.
Since its 1968 inception, the NFIP has served, as it was designed, to provide some level of insurance coverage for this peril where none existed in the private market. The philosophy behind the creation of the NFIP was to help people by providing a low-cost insurance product, underwritten by the federal government, that would respond to any flooding event — regardless of how local or widespread. The priority was, according to the enabling legislation, "pooling risks, minimizing costs and distributing burdens equitably among those who will be protected by Flood insurance and the general public." [emphasis added]
The NFIP is currently $23 billion in debt to the Treasury Department, largely due to Hurricanes Katrina, Rita and Wilma in 2005 and Superstorm Sandy in 2012. As a result, Congress has sought to begin the implementation of actuarially sound rates to ensure the viability of the program in the future. Congress has increased the burden on selected property owners, most notably those owning second homes and business properties.
A case can be made for seeking forgiveness of the NFIP debt. Essentially, it is a debt that Congress owes itself. It represents payments to people who sustained losses to property they insured in good faith through the NFIP. But Congress is unlikely to take responsibility for debt sustained under these circumstances, in this political climate.
The remainder of 2016 will see continued deliberation on the reauthorization of the NFIP due in September of 2017. This will be a vital reauthorization for a program many see at a crossroads. Encouraging the private Flood insurance market is a good first step that we hope to see accomplished this year, understanding that, at present and in the near future, the private market is not a realistic replacement for the NFIP.
Ted Besesparis is senior vice president of the National Association of Professional Insurance Agents in Alexandria, Va. Opinions expressed in this article are his own.
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