Congress Gets A Taste Of The Industrys
Huge Divide On Federal Regulation
As the Senate Banking Committee expressed new interest in the competitiveness and regulation of the insurance industry, testimony last week before the committee illustrates the huge divide within the industry as to what should be done to make it more competitive.
For example, in its testimony, the Independent Insurance Agents and Brokers of America said Congress can play a “vital role” in reforming the state insurance regulatory system, but that role should be “targeted and limited.” On the other hand, a representative of the Financial Services Roundtable, an umbrella group whose members come from all segments of the financial services, used the occasion to voice support for an optional federal charter.
Both comments were made at a Senate Banking Committee hearing, “Examination of the Gramm-Leach-Bliley Act Five Years After Its Passage.”
Their comments took on more importance because, during the hearing, Sen. Richard Shelby, R-Ala., chairman of the panel, surprisingly said, “Later this year, I am planning to bring the regulators before the committee to complete our discussion about the law. We also plan to hold further hearings concerning the state of the insurance industry in the post-GLB environment.”
Shelbys comments were surprising because the greatest initiative in insurance regulatory reform has been in the House, where Reps. Mike Oxley, R-Ohio, chairman of the Financial Services Committee, and Richard Baker, R-La., chairman of the most important subcommittee on the panel, have held hearings and are now drafting legislation establishing a federal “roadmap” for involvement in insurance industry regulation. They are trying to balance the interests of the states, regulators, governors and legislatures, and agents groups, which support the current state-based system, and most large underwriters in both the property/casualty and life industries, who support the federal charter concept.
The IIABA, who drafted the so-called federal standards approach Oxley and Baker are embracing, is its strongest advocates. As Ronnie Tubertini, chairman of the IIABAs Government Affairs Committee, and also president and CEO of SouthGroup Insurance Financial Services in Mississippi, stated clearly, the state insurance regulatory system needs repair. He said the problems that congressional support can help with in fixing state insurance regulation “fall into two categoriesit simply takes too long to get a new insurance product to market, and there is unnecessary duplicative regulatory oversight in the licensing and post-licensure auditing process.”
The independent agents and brokers “believe that there is a vital role for Congress to play in helping to reform the state regulatory system but that such an effort need not replace or duplicate at the federal level what is already in place and successful at the state level.”
The “overarching principles” that should guide federal regulatory efforts in the insurance arena are that “Congress should attempt to fix only those components of the state system that are broken,” Tubertini said. “Second, no actions should be taken that in any way jeopardize the protection of the insurance consumer, which is the fundamental objective of insurance regulation and of paramount importance to the IIABA as our members represent consumers in the insurance marketplace.”
But in his testimony, Steve Bartlett, president and CEO of the Financial Services Roundtable, took an opposite approach, not the measured, politically possible approach of incremental federal involvement but one in favor of open competition between the federal and state regulatory structures.
“The Roundtable has concluded that the best way to reform the regulation of insurance is to create a parallel system of chartering and supervision for insurance companies at the federal level,” Bartlett testified.
“This so-called optional federal chartering system would not replace state insurance regulation,” he said. “Instead, it would give insurance companies a supervisory alternative, similar to that available to banks and thrifts.”
In his testimony, Bartlett disclosed that a study soon to be released has found that the competition between the states and the federal government inherent in the dual banking system has generated significant benefits for banks, regulators and their customers. “These same benefits would flow to the insurance industry, its regulators and its customers through the introduction of optional federal regulation of insurance.”
Shelby had not indicated support in the past for wrestling with the insurance regulation issue. The common think on Capitol Hill was that the House Financial Services Committee will pass a bipartisan “standards” bill in September and that it has a chance of passing the full House but that Senate action is unlikely. Shelbys decision to review the issue is leading some to think that while it is unlikely any legislation will be enacted this year, enough might be accomplished to set the stage for action sometime next year.
Reproduced from National Underwriter Edition, July 16, 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.