Legislation was introduced in the Senate on May 24 that creates a parallel federal system of regulation and supervision for insurers as well as agents and brokers that is similar to the dual banking system.
Bill S.40 was introduced by Sen. Tim Johnson, D-S.D., and Sen. John Sununu, R-N.H., and is based on legislation introduced by them in the last session of Congress.
“Our bill recognizes the clear direction the marketplace is taking,” Sununu said in introducing the bill. “Since last year, the question has become not whether an optional federal charter should be implemented, but when.”
He added, “Consumers will be the ultimate beneficiaries of this approach, enjoying more choices from companies that compete for their business by introducing new products, innovating in the marketplace, and acting in a way that responds quickly to their needs.”
The bill, “The National Insurance Act of 2007,” makes clear that insurers and producers would both be free to elect federal or state regulation, charters and licenses. Under the bill, states would maintain responsibility of regulating state-licensed insurers and producers.
Frank Keating, president and CEO of the American Council of Life Insurers, said in reaction to the bill, “Giving companies and agents a choice between a federal or state regulator would translate into a regulatory system that is far more responsive to the needs of today’s consumers and the life insurance industry than the inconsistent laws and regulations that are endemic to the current state-based system.”
The ACLI will support language in the bill “assuring that federally-regulated insurers offer the best consumer protections in the nation,” he added.
Keating said the legislation should take a “best practices” approach on consumer protections, “combining well-tested ideas from around the nation into a single coordinated and efficient system.”
“Why should policyholders facing similar risks and needs living in neighboring states not have the same policy choices and benefits?” Keating asked.
Timothy Flanagan Jr., general agent, Hinrichs Flanagan Financial, a MassMutual general agency based in Charlotte, N.C., voiced support for the bill.
“We applaud Senators Johnson and Sununu for taking steps to reform our system of insurance regulation and modernize a system of rules that was developed more than 100 years ago,” he said. “This proposed legislation is a win-win for the insurance industry and consumers, as it would bring enhanced value, efficiency and choice to the marketplace.”
The National Association of Insurance and Financial Advisors said its policy is to support efforts at the state or federal levels that will improve the insurance regulatory system.
“Regulatory reforms are needed in areas such as agent licensing and speed to market of insurance products,” NAIFA said in a statement. “NAIFA will study this legislation and continue to work with its industry partners as well as state regulators and Congress to ensure a regulatory environment that allows agents and advisors to meet the needs of consumers.”
The bill would create an independent Office of National Insurance within the Treasury Department similar to those now used to regulate national banks and thrifts. Its commissioner would be appointed by the president for a 5-year term subject to Senate confirmation.
It authorizes the chartering of separate life and property-casualty insurers, but creates a holding company that would provide an umbrella for separate life and p-c insurers.
The bill authorizes the chartering and licensing of national insurance agencies and the licensing of federal insurance producers.
Under the bill, a national agency would be authorized to sell insurance for any federally chartered or state-licensed insurer. A federally licensed insurance producer could sell insurance in any state on behalf of any national insurer or state insurer.
The bill also allows a state licensed insurance producer to sell insurance on behalf of any insurer, including national insurers, operating within the state in which the producer holds a license.
The bill excludes any reference to health insurance, but allows federally licensed insurance producers to sell health insurance offered by state health insurers.
The bill also specifically directs the commissioner to establish regulations barring unfair trade and claims practices.
But, addressing the concerns of insurers, especially the life insurance agents industry, about certain bills currently being proposed in the House and Senate, it exempts all federally chartered insurers/agencies and federally licensed producers from Federal Trade Commission oversight of their antitrust and unfair trade practices authority.
One lawyer and lobbyist said the bill’s introduction “continues the momentum toward enactment of meaningful insurance regulatory reform.” But, the lawyer cautioned, “it promises to be a long process, and the legislation ultimately enacted into law will no doubt change considerably from the current proposal.”
The following groups have expressed support for the National Insurance Act: the Agents for Change, the American Bankers Association, the American Bankers Insurance Association, the American Council of Life Insurers, the American Insurance Association, the Council of Insurance Agents and Brokers, the Financial Services Forum, the Financial Services Roundtable, the Life Insurers Council, the National Association of Independent Life Brokerage Agencies, and the Reinsurance Association of America.