By Arthur D. Postal
According to industry observers, the National Association of Insurance Commissioners is sending shock waves through the leadership of the House Financial Services Committee by sending a letter that the leadership believes takes a hard line against proposed federal modernization legislation.
“The State Modernization and Regulatory Transparency Act (SMART) is not a concept that NAIC would suggest to Congress,” the letter said. “Our concerns are deeply rooted in the basic structure of the SMART Act that mandates federal preemption of state laws and regulations, federal supervision of state regulation, and complete rate de-regulation for all states. We do not believe that tweaking the language of the SMART Act discussion draft can resolve these basic conflicts.”
An industry official, one of the few given access to the letter, said the committee leadership and staff is concerned because, “it negatively critiques SMART. It doesnt seem they want to engage in this process in a positive way.”
The committee also is voicing deep concern, according to several sources, about a summary paragraph which said a committee of state regulatory agency staffers and commissioners had conducted an intense analysis of drafts of the legislation provided by the committees Republican staff. “Although the NAICs SMART Act review teams were not tasked with reaching policy decisions, their factual findings reveal fundamental problems for preserving essential state regulatory authority if the basic elements of the draft SMART Act bill become federal law,” the letter said.
The letter was dated March 18 and signed by NAIC President and Pennsylvania Commissioner Diane Koken. The NAIC promised to send a copy of the letter and a press release summarizing its contents March 23, but had failed to do so by press time.
However, several copies of the letter were acquired by National Underwriter from industry sources on both the life and property/casualty sides of the business. With Congress in recess, no members of the panels leadership were available for comment, and a committee staffer did not return phone calls seeking comment.
But three of the people contacted who were familiar with the letters comments said the committees leadership and staff regarded the letter as “negative.”
An industry official whose comments represented a consensus of those from whom the document was obtained voiced equal concern that the response could result in the NAIC playing a smaller role in the drafting of the bill than envisioned by Rep. Mike Oxley, R-Ohio, chairman of the committee, when he first unveiled plans for such legislation last April.
“I think the NAIC is making a huge mistake,” this official said. “They are under the misapprehension that reform in the state capitols is an option that federal legislators are looking at, and it isnt. They seem to think there are three options on the table: reform state by state in state capitols; targeted federal legislation to improve the state-based system, the Oxley-[Rep. Richard] Baker [R-La., chairman of the committees key subcommittee] SMART proposal; and third, an optional federal charter, or mandatory federal regulation.