State insurance regulators today said that they could accept a bill that would establish a federal Office of Insurance Information, while state lawmakers talked about the role state regulators would play at the OII.

H.R. 5840, the Insurance Information Act, has won the “conditional support” of the National Association of Insurance Commissioners, Kansas City, Mo., as long as no one expands the powers granted to the proposed OII during the legislative process, Illinois Insurance Director Michael McRaith testified here on behalf of the NAIC, at a hearing of the House Financial Services Committee Capital Markets Subcommittee.

“Our conditional support also hinges on the proposal not changing in ways detrimental to insurance consumers as it winds its way through the legislative process,” McRaith said.

Rhode Island state Rep. Brian Kennedy, D-Hopkinton, R.I., who testified on behalf of the National Conference of Insurance Legislators, Troy, N.Y., criticized a section of the bill that would create an insurance advisory group and give the NAIC a primary role in group affairs.

About 80% of state insurance commissioners are gubernatorial appointees, and the current draft of the advisory group provision would lead to a “dramatic enhancement of the authority for this non-governmental entity known as the NAIC, which comes at the expense of the state officials to whom they are accountable,” Kennedy testified at the hearing.

Rep. Paul Kanjorski, D-Pa., the chairman of the Capital Market Subcommittee and author of H.R. 5840, convened the hearing to review the bill.

The bill would set up the OII, an arm of the U.S. Treasury Department that would advise other federal agencies about insurance issues and work with the U.S. Trade Representative.

Kanjorski says he wants to move the bill through the House Financial Services Committee “in the near future,” but he also says the November elections will impose “terrible time constraints.”

No companion bill has been introduced in the Senate.

During the hearing, McRaith responded to Kennedy’s concerns about the way the bill treats the NAIC by suggesting that NCOIL also could fill seats on the advisory group.

Getting a seat on the advisory group “would probably help us a little bit” with warming up to H.R. 5840, Kennedy said.

Jeremiah Norton, a deputy assistant secretary from the Treasury Department, said the Executive Branch likes the bill and believes the H.R. 5840 OII provision is similar to a section in the department’s “reform blueprint” that calls for the creation of a federal insurance information office.

The concerns the Treasury has with H.R. 5840 have to do largely with matters of clarification and are “very bridgeable,” Norton said.

Rep. Donald Manzullo, R-Ill., said H.R. 5840 would move the insurance industry closer to a federalized regulatory system. The OII bill is a “soft punch,” to be followed later by much stronger action, Manzullo said.

Much of the hearing discussion focused on efforts to give the OII and the Treasury secretary some ability to pre-empt state insurance laws, to knock down state laws that conflict with international agreements.

McRaith said the NAIC would like to see the pre-emption provision clarified.

Both McRaith and Kennedy agreed that any pre-emption provision should be kept as narrow as possible.

Insurance industry representatives warned that a carelessly written pre-emption provision could end up giving foreign insurers better treatment than domestic companies get.

“We believe pre-emption is appropriate in the context of this bill, but we also believe the pre-emption language must be carefully crafted in order to avoid consequences that neither the industry nor Congress intend,” said Stephen Rahn of Lincoln National Corp., Philadelphia, who testified on behalf of the American Council of Life Insurers, Washington.

But failing to include an effective pre-emption provision “would perpetuate the current patchwork system of regulations and undermine the ability of the U.S. to effectively participate in the international arena,” said Tracey Laws, a senior vice president at the Reinsurance Association of America, Washington.