A streamlined version of the State Modernization and Regulatory Transparency Act that would give pre-emptive regulatory authority to home-state regulators working under standards set by Congress is being drafted by staff of the House Financial Services Committee.
The purpose of redrafting SMART is to reduce the size and complexity of the bill substantially, with some seeing its size dropping from the current 300 pages to 60.
Other purposes are to “jump-start” industry interest in the bill by making it less controversial, and also out of concern that the moderate House approach to insurance regulatory reform is being crowded out by the optional federal charter legislation introduced in late April by two members of the Senate Banking Committee.
The revised bill would provide pre-emption authority for home-state regulators working under standards set by Congress in terms of licensing, examination and product approval. It would also eliminate the so-called “partnership” system in the current versions that would have created a federal office to coordinate insurance regulation with state officials.
Under the bill, Congress would establish certain “prescriptive standards” that state regulators would have to meet by a certain date, according to one lawyer who has seen the draft bill.
State regulators would have to execute these standards or face certain sanctions, the lawyer said.
The problem for the industry, the lawyer said, is that if a state regulator were not complying with the standards, a carrier, agent or broker would have to sue the regulator in federal court to force compliance. “The problem the industry sees with the bill is that few companies, whether they be carriers, agents or brokers, see little future in suing your state regulator, in, of all places, federal court.”
On the positive side, the lawyer said, the “prescriptive standards” are seen as having a greater chance of meeting constitutional muster than did the language in the old bill, which merely mandated state compliance with federal standards. “Industry believes that approach raises constitutional issues,” the lawyer said.
The new draft is being prepared for presentation to Reps. Mike Oxley, R-Ohio, chairman of the committee, and Richard Baker, R-La., chair of the panel’s Capital Markets Subcommittee.
A panel spokesperson confirmed “that there has been some redrafting” but cautioned that no final decision has been made about introducing it this year.
However, an industry lobbyist familiar with the deliberations said the intent is to have it introduced this year.
In a nutshell, under standards set by Congress, the proposal would give the home-state regulator of agents pre-emptive national licensing authority, the regulator of the domicile state for a carrier the same authority, and the regulator of the state of the policyholder pre-emptive authority in the case of surplus lines.