Bipartisan legislation creating an optional federal charter for insurance will be introduced in both the House and the Senate next year, but a key lobbyist cautioned that the outlook for passage of such legislation remains cloudy for the foreseeable future.
At the same time, the lobbyist said the “real risk” for the insurance industry in the coming Democratically-controlled Congress in winning support for new products to sell is the “pay as you go” policy Democrats plan to enforce in order to reduce the budget deficit. The “pay as you go” policy would stipulate that any proposal for a new life insurance product with a tax-incentive component will require offsetting revenues to be found.
“Who loves insurance companies?” asked John Jonas, a veteran industry lobbyist and senior partner with Patton, Boggs. “I love insurance companies, but others don’t. This proposed pay-as-you-go policy represents a random threat to tax-advantaged insurance products.”
But Democrats will seek to work on retirement-side savings issues, Jonas said. “There will be a number of opportunities for the life insurance industry on the savings side, especially on products designed to serve as an incentive to save for retirement,” he said, specifically citing annuity products, like those that provide a payout during the retirement phase. But the industry will have to “adjust its proposals to financial reality. Theoretically, those things will fall within the realm of something that can be accomplished.”
On the positive side for supporters of the OFC, an aide to Rep. Paul Kanjorski, D-Pa., said at a seminar here on Nov. 15 that the presumptive chairman of the key Capital Markets Subcommittee of the House Financial Services Committee believes the concept of an optional federal charter for insurers “is an idea that is increasingly gaining in attractiveness in Washington.”
Kanjorski stepped back last year from supporting this legislation when it was introduced in late September in the House by Rep. Ed Royce, R-Calif., after earlier signaling that he might support such legislation. Lobbyists said Kanjorski demurred from becoming a co-sponsor after the presumptive Democratic chairman of the Committee, Rep. Barney Frank, D-Mass., voiced concern about ending rate regulation for personal lines insurance offered by property/casualty carriers.
Another issue the committee is likely to take up, said Todd Harper, a legislative assistant to Kanjorski, is legislation to clarify and simplify the regulation of multi-state surplus lines transactions. That legislation was passed by the House this year, but is unlikely to move through the lame-duck Senate, which Harper noted has ignored the bill thus far.
At the same event, Rep. Dennis Moore, D-Kans, said an extension to the TRIA program or another long-term solution, the optional federal charter, and the issue of how to deal with catastrophic risk are all “high on the agenda’ for the Financial Services Committee in the 110th Congress.
At the same time, Sen. Tim Johnson, D-S.D., told National Underwriter on Nov. 15 that he and Sen. John Sununu, R-N.H., will reintroduce their legislation next year to create an OFC. Johnson will be the second-ranking Democrat on the Senate Banking Committee next year, behind Sen. Chris Dodd, D-Conn., who will be the chairman under Democratic control.
At a press briefing Nov. 14, Dodd said the theme of the committee going forward will be “security and prosperity,” and he and the outgoing chairman, Sen. Richard Shelby, R-Ala., pledged to work together on a bipartisan basis where possible. But Dodd declined to comment later on the OFC bill or otherwise outline a specific agenda.
“I was very encouraged that the Senate Banking Committee hearings on insurance industry modernization in July resulted in positive responses to an OFC,” Johnson said. “The introduction of S. 2509 generated much discussion within the insurance industry, and I look forward to continuing that discussion with the insurance industry and my colleagues into the 110th Congress. I also believe the Banking Committee will resume efforts to examine the insurance industry and proposals for industry modernization.”
He added that “the need for insurance industry modernization is not going away; Sununu and I will reintroduce the National Insurance Act that would move us toward a regulatory system that gives insurance companies, agents, brokers and the customers they serve the benefits that come from a regulatory system that fosters competition, protects consumers, and allows consumers to select from the widest possible variety of insurance products.”
The American Council of Life Insurers reacted to Johnson’s announcement by saying that his ranking position on the Senate Banking Committee “bodes well for the life insurance industry and its policyholders.”
An ACLI staff official added, “We look forward to working with both senators again in the next Congress when they reintroduce their OFC legislation.”