At a hearing last week, the National Association of Insurance Commissioners continued its policy of steadfast opposition to federal legislation imposing “standards” on state regulators, but five former regulators took a more measured approach, with several warning that some mechanism for establishing uniformity in state insurance regulation is imperative.
Several of the regulators also took issue with the NAIC’s doomsday analysis that the proposed legislation–the draft State Modernization and Regulatory Transparency Act–incorporates “unacceptable levels of federal preemption that would create both legal and practical problems for the insurance industry and its customers.” In fact, said former Ohio Insurance Commissioner Lee Covington, preemption provisions in the proposed legislation are only a “last resort.”
SMART currently is being drafted by the House Financial Services Committee staff. The hearing was held by the Capital Markets subcommittee.
Rep. Paul Kanjorski, D-Pa., ranking minority member of the subcommittee, used the hearing to drum up support for an optional federal charter, especially for life insurance companies.
“Rather than overlaying a federal bureaucracy on top of state regulation, an OFC would, in my view, create a sensible, separate and streamlined regulatory system.”
Kanjorski said in his opening statement that “the consensus for creating such a charter continues to grow.” He added that “the dual oversight has worked well for banking. Moreover, because of its standardized products and nationwide marketplace, the life insurance industry, from my perspective, is particularly ready for the adoption of an OFC.”
Despite the apparent consensus of the five former commissioners for some form of federal action, Diane Koken, Pennsylvania commissioner and president of the National Association of Insurance Commissioners, was steadfast in opposition to the bill.
“The states believe it is constructive to point out basic constitutional, legal and operational problems that would undermine the SMART Act’s stated purposes,” she said. She added that “state insurance regulators are public servants representing the same people who are your congressional constituents,” clearly implying that the regulators would seek to pressure committee members in their own districts if they continue to proceed with the bill.
“The draft SMART Act incorporates unacceptable levels of federal preemption that would create both legal and practical problems for the insurance industry and its customers,” Koken testified.
“Federal preemption of state insurance regulation denies your congressional constituents the benefits of important state services and protections, as has already been proven in existing federal programs, such as FEMA in its administration of the National Flood Insurance Program, and ERISA through its taking away state authority to assist your constituents,” Koken said.
Specifically regarding life insurance, she noted, “Where appropriate, NAIC and the states are working to achieve full regulatory uniformity to benefit both consumers and insurance providers. Marketing life insurance is an area where we agree with industry that greater uniformity is needed.”
To accomplish this, she said, “the NAIC negotiated development of an appropriate interstate compact, with full input from industry and consumer representatives.” An interstate compact, Koken said, “is the best way to get the job done while preserving effective state consumer protections.”
Koken said the number of states in the compact will soon grow to 17, which represents approximately 23% of the premium volume in this country. She estimates that the compact will become operational in 2006, calling it a “remarkable achievement, considering the general rule of thumb for compacts is that it takes anywhere from seven to 10 years to get them from the planning stage to becoming operational.”