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Regulation and Compliance > State Regulation

Lawmakers Unveil Federal Charter Proposal

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A new Senate bill would let insurers choose between regulation by state insurance departments or by an Office of National Insurance.

The bill, the “National Insurance Act of 2006,” would permit states to continue to apply some insurance laws, including laws setting minimum standards for workers’ compensation insurance and motor vehicle insurance standards and laws requiring insurers to participate in “residual market” mechanisms, such as assigned risk plans and mandatory joint underwriting associations.

States also could continue to apply general state laws, including state tax laws and laws governing unclaimed property.

But the bill, which makes no mention of health insurance, would bar states from restricting the ability of state-licensed producers to sell, solicit or negotiate insurance on behalf of national insurers, according to bill summaries circulating in Washington.

Sens. John Sununu, R-N.H., and Tim Johnson, D-S.D., the bill sponsors, are preparing to introduce the bill in the Senate today.

The National Association of Insurance Commissioners, Kansas City, Mo., has opposed the idea of creating an optional federal charter, but the American Council of Life Insurers, Washington, is welcoming the Sununu-Johnson bill.

Letting insurers choose between state regulation and federal regulation “would be far more responsive to the needs of today’s consumers and companies than inconsistent laws and regulations that are endemic to the current state-based system,” ACLI President Frank Keating says in a statement.

The new federal insurance regulatory agency, the Office of National Insurance, would be housed in the Department of the Treasury and headed by a commissioner appointed by the president and subject to Senate confirmation.

Similar to a state insurance department, the ONI would license and oversee insurers, agencies and producers; issue regulations covering the breadth of insurance regulatory issues from market conduct to solvency to conversions to receivership; and enforce the insurance laws and regulations.

The ONI would include a Division of Insurance Fraud and a Division of Consumer Affairs.

The fraud division would be responsible for investigating suspected fraudulent insurance acts by persons engaged in the business of insurance or by other persons. The bill’s fraud provisions would require that each national insurer place a fraud warning on policy applications and claim forms.

The Division of Consumer Affairs would be responsible for enforcing market conduct regulations required to be promulgated by the commissioner concerning the advertising, sale, issuance, distribution, and administration of insurance policies and other products of national insurers. The division also would have to enforce new regulations concerning the handling of claims filed with national insurers.

The Johnson-Sununu bill would permit the creation of insurance self-regulatory organizations for national insurers, national agencies and federally licensed insurance producers. The SROs would have the authority to require their members to comply with federal insurance law, any regulations issued by the commissioner, and the rules of the SROs themselves.


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