The House Financial Services Committee renewed efforts on June 21 to streamline insurance regulation through federal legislation by hearing industry views on a bill proposed earlier in the week that narrowly targets reinsurance.
The bill and the hearing focused on legislation that would establish a uniform system of regulation for surplus lines and reinsurance.
But congressional supporters and a representative of the life industry noted that Congress should also consider broader legislation introduced in April in the Senate that would create an optional federal charter for insurers.
The hearing was convened by the Capital Markets Subcommittee of the full committee.
At issue in the hearing was a legislative proposal by Reps. Ginny Brown-Waite, R-Fla., and Dennis Moore, D-Kan., the Nonadmitted and Reinsurance Reform Act, H.R. 5637.
The bill would establish a uniform system of premium tax allocation and collection for surplus lines, and bar states from asserting the extraterritorial application
“We have concerns about the current 50-state system of regulating life reinsurance, testified David Gates, a senior vice president, general counsel and secretary of Generali USA Life Reassurance Company, Kansas City, Mo. Gates represented the American Council of Life Insurers, Washington. “U.S. regulation of life reinsurance has become increasingly ad hoc and inconsistent. It has not kept pace with the risk-based regulatory standards of competing financial sectors, such as banking. It has not recognized newer forms of reinsurance as prudent risk management tools for life insurers in their development of consumer-driven financial and retirement security products.
“In short, the current 50-state system of regulating life reinsurance has not adapted to current best-practices standards of financial supervision and is an impediment to progress.”
Alluding to life industry support of an OFC, Gates said, “To the extent H.R. 5637 establishes a more efficient state-based system of regulation, ACLI endorses it.
“At the same time, we urge Congress to pursue a comprehensive federal regulatory option for insurers and reinsurers,” Gates concluded.
As one of the authors of the State Modernization and Regulatory Transparency, or SMART Act along with full committee chairman Mike Oxley, R-Ohio, Rep. Richard Baker, R-La., chairman of the subcommittee, asked the witnesses if H.R. 5637 would serve as an effective “test case” for the approach as the more broad-based SMART effort has run aground due to strong opposition from the states.
Baker also said he is optimistic that a bill to streamline regulation and pricing for certain commercial insurance products could move this year–although most industry lobbyists and congressional staffers believe that would be very difficult.
Rep. Edward Royce, R-Calif., also voiced support for the optional federal charter, citing “widespread agreement that our nation’s regulatory system impedes the ability of insurance consumers to get coverage at the lowest possible cost.” The need for a bill such a bill as H.R. 5637, he said, is “prima facia evidence” that Congress needs to play a role in insurance regulatory matters.
One congressional supporter of an optional federal charter voiced concern at the hearing that no representative of the National Association of Insurance Commissioners was on hand to present the case for state regulation.
“Before moving [on this legislation], we need to hear from the NAIC,” Rep. Paul Kanjorski, D-Pa. said. He noted that “good public policy” should include input from all interested parties, and that the NAIC is “certainly interested” in surplus lines issues. “Even if we ultimately disagree, we must engage them in constructive dialogue,” he said.
While state regulators may take some solace in those comments, others made by Rep. Kanjorski were likely less heartwarming, including his opinion that the proposed optional federal charter “merits further attention” from Congress.