Legislation enabling both federally licensed producers as well as insurers to conduct business nationwide free of state regulation was introduced last week in the Senate, prompting reactions in the industry ranging from positive to hostile.
The American Council of Life Insurers, for example, which lobbied heavily for prompt introduction of the bill, voiced strong support. The National Association of Insurance and Financial Advisors, however, was more restrained.
A NAIFA official said the trade group’s leadership was “studying” the bill. NAIFA says it supports overhaul of the insurance regulatory system in general but insists that any reform proposal it supports “must streamline the producer licensing process and meet certain consumer protections.”
State insurance regulators also weighed in with their views of the bill. (See related story, “State Officials Take Shots At OFC Proposal.”)
The National Insurance Act of 2006, S. 2509, would bar states from preventing or restricting state-licensed producers from selling, soliciting or negotiating insurance on behalf of national insurers.
Under the bill, state insurance laws would be preempted in general, but certain insurance laws would still apply.
Moreover, as stated by Sen. John Sununu, R-N.H., one of its sponsors, during a press conference to announce the bill’s introduction, “The premium tax structure that’s in place works for states and makes sense for states.” The bill, he added, “does not change that.” Sen. Tim Johnson, D-S.D., is the bill’s other sponsor.
The bill also makes no mention of health insurance.
It is expected that Sen. Richard Shelby, R-Ala., chairman of the Senate Banking Committee, will hold a hearing on the legislation by late May, although no formal action on the bill is expected this year.
The House Financial Services Committee has been drafting legislation creating “national standards” for state insurance regulation for several years; the bill is the State Modernization and Regulatory Transparency Act, or SMART. It is unclear if and when that bill will be introduced.
In comments April 6 at a press event, ACLI President and CEO Frank Keating said there are currently “three ships” in the water on insurance reform: SMART, the interstate compact and the OFC. “The SMART bill does not appear able to reach the opposite shore,” Keating said, adding that the ACLI has heard the bill “would not be enacted anytime soon.”
As stated by one industry lawyer involved in the process, “This is the first official shot across the bow in the effort to enact meaningful insurance regulatory reform. It promises to be a long process, but finally the debate has been engaged.”
Keating said, “The measure would bring the insurance regulatory system into the 21st century by giving insurance companies a choice between exclusive federal or state regulation.
“This system 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,” he said.
Gary Hughes, executive vice president and general counsel of the ACLI, said the trade group was “very heartened by the introduction of this legislation.” The bill “is consistent with our view” of insurance reform, he said, although he made sure to add that Sununu and Johnson did things “in their own way.”
One new aspect he mentioned was the federal regulator would be required to have at least six regional offices and could eventually delegate authority to a self-regulating group, which he said could be similar to the Securities and Exchange Commission or the National Association of Securities Dealers.
This is likely what the drafters envisioned through a provision of the bill that permits the creation of insurance self-regulatory organizations (SROs) for national insurers, national agencies and federally licensed insurance producers.
The SROs would have the authority to force members to comply with federal insurance law, any regulations issued by the commissioner, and the rules of the organization itself.
Although the bill permits the commissioner to delegate certain authorities to insurance SROs, delegation of the commissioner’s authority to issue licenses and make rules is prohibited.
The bill has its steadfast opponents.
Charles Symington, senior vice president of government affairs and federal relations for the Independent Insurance Agents and Brokers of America, said, “The IIABA and our membership of 300,000 individuals from across the country strongly oppose this short-sighted legislation as we believe it will eventually only lead to increased regulatory burden on our membership and will be harmful to consumers.
“Our opposition will be readily apparent on Capitol Hill when we fly in more than 1,500 insurance agents later this month to oppose this bill,” Symington added.
The bill would create a federal regulator for insurers and producers that choose to be licensed and regulated at the federal level, according to several analyses of the bill by lawyers for industry trade groups.
The Office of National Insurance (ONI) 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 insurance laws and regulations, one analysis of the bill said.
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 people engaged in the business of insurance or by others. 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 and claims under insurance policies and other products of national insurers.