The life insurance industry is “particularly ready” for the adoption of an optional federal charter, says a senior Democrat on the House Financial Services Committee.
Speaking at a March 31 hearing on insurance regulatory reform, Rep. Paul Kanjorski, D-Pa., cited the life insurance industrys standardized products and nationwide marketplace as the reasons why an OFC, similar to what exists for the banking industry, would work well.
“Rather than overlaying a federal bureaucracy on top of state regulation, an optional federal charter would create a separate, streamlined regulatory system,” Kanjorski said.
He noted that the committee is not yet considering OFC for life insurance, but he said a consensus continues to grow. The National Association of Insurance and Financial Advisors, Kanjorski said, decided to embrace certain federal initiatives that would work to improve the regulation of insurance, including an OFC.
But representatives of the National Association of Insurance Commissioners insisted that the interstate compact on life insurance regulation remains the best means to streamline life insurance regulation.
NAIC President Ernie Csiszar, the South Carolina Commissioner, acknowledged that the life insurance industry presents the best case for uniformity. He said the NAIC is on track to achieve reform before 2008.
But Kanjorski questioned Csiszar about whether OFC might not be better for consumers. If Congress created an OFC for life insurers, he asked, wouldnt that have a positive impact in that it would free up insurance department resources to regulate in problem areas?
Csiszar replied that he still has a problem with that. Consumer complaints occur at the local level, Csiszar said, and states can deliver at the local level. Moreover, he said, all the experience with insurance regulation is at the local level.
The interstate compact, he said, is the solution to the uniformity issue. Csiszar emphasized that this is not about turf protection. The issue, he said, is where can the job best be accomplished.
Kanjorski, however, responded that NAIC always seems to be 3 years, 5 years, 10 years from reform. It is already 5 years since Congress passed the Gramm-Leach-Bliley Act, he noted.
“Im starting to lose confidence that all 50 states are capable of coming together and solving this problem,” Kanjorski said.
Csiszar replied that the proof is in the pudding. “We must deliver,” he said.
If NAIC and the states have not delivered 5 years from now, he told the committee, “you can hammer me over the head.”
Committee Chairman Mike Oxley, R-Ohio, said he believes insurance regulatory reform will be impossible to achieve without congressional legislation.
Throughout the course of 14 hearings in the committee, he said, it has been demonstrated that the states cannot get the job done by themselves.
The “collective action barrier” to getting legislators and regulators from 56 jurisdictions to act in complete unison is, and will always be, insurmountable absent federal legislation, he said.
A visitor at the hearing, Rep. Earl Pomeroy, D-N.D., who does not serve on the committee, challenged the interstate compact. Pomeroy, a former NAIC president and North Dakota Commissioner, said he believes NAIC is going down a “dead end” with the interstate compact.
Much has been achieved over 150 years of state regulation simply by coordination among the commissioners, he said, all without the need for legislative bodies to act.
It is very unlikely, Pomeroy said, that all state legislatures will act on the compact, and that will give Congress a “bulls eye” to target in 2 or 3 years.
He told New York Superintendent Greg Serio that he would be shocked if the New York legislature approves the interstate compact. Serio, however, responded that he believes there is a very good chance it will be approved.
Csiszar said NAIC is under no misconception about the difficulty of getting the interstate compact in place. But he added the compact does not preclude working in a collaborative effort to achieve national standards.
OFC also appeared to get something of a boost from consumer advocate J. Robert Hunter, director of insurance for the Consumer Federation of America.
He also acknowledged that the life industry is different from the property-casualty industry, which was the focus of the hearing, and that the p-c industry is a “millstone” around the neck of the life industry when it comes to getting an OFC.
Hunter, who testified against OFC, said that if the p-c industry is divorced from OFC legislation, “then we can talk.”
The life insurance industry did not testify at the hearing, but both NAIFA and the American Council of Life Insurers submitted statements for the record.
NAIFA Chief Executive Officer David F. Woods said a roadmap for reform recently outlined by Oxley and Rep. Richard Baker, R-La., “holds the potential for achieving real change and real improvement in a timely fashion.”
Depending on the details, which have not yet been released, Woods said the Oxley-Baker proposal is appealing because it relies on the best elements of state regulation to improve the worst problems confronting the system, including licensing and speed-to-market, and forces all states to take action.
ACLI said it continues to believe that OFC is the best way to address regulatory reform. However, ACLI noted in its statement, OFC is unlikely in the near term and the problems with the current system persist.
Thus, ACLI said, it is pleased that the committee is considering a targeted approach, which has the potential to make meaningful improvements in the most troublesome areas.
Baker said the hearing is probably the last one the committee will conduct before considering legislation. However, Oxley and Baker did not release any details of their roadmap during the hearing.
Reproduced from National Underwriter Edition, April 2, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.