NAIC Gives 'Conditional Support' To Federal Insurance Office Bill

Another of McRaith’s fellow Illinoisans, Rep. Melissa Bean, also had the future in mind, but in a more positive sense. As a supporter of the OII legislation, and of legislation establishing an OFC, Bean noted that while she and McRaith might differ on the need for a federal insurance regulator, his record and expertise on insurance issues, “would make him an ideal candidate for the role” of a federal insurance regulator.

While those representing the states were divided on their support for the proposal, the federal executive branch was strongly supportive of the bill. Deputy Assistant Secretary Jeremiah Norton told the panel that the creation of an OII under the bill was very similar to a recommendation made in the Treasury’s recent “blueprint” for reforming the financial services regulatory system. What concerns the Treasury had, he added, were largely matters of clarification and were in his view “very bridgeable.”

Aside from the role played by the NAIC, another major concern for those testifying before the committee was the authority the OII would have to pre-empt state laws that run counter to international agreements. Both McRaith and Kennedy expressed their concerns on the issue that federal pre-emption be should be limited and kept as narrowly defined as possible.

For those within the industry itself, the discussion was somewhat more conflicted. A main concern expressed by property-casualty as well as life insurers, was that the pre-emptions, which are designed to ensure that foreign firms are not subject to discriminatory treatment, do not inadvertently end up receiving better treatment than domestic companies.

“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, vice president and associate general counsel for the Lincoln Financial Group, who testified on behalf of the American Council of Life Insurers.

Neal Wolin, president and chief operating officer of property and casualty operations for the Hartford Group, expressed a similar concern on behalf of the American Insurance Association. In refining the bill from its original version, Wolin noted that the pre-emption was narrowed to block only those measures that would cause a jurisdiction to treat a non-U.S. insurer “less favorably” than a domestic company. “Pre-emption should be exercised to ensure that all insurers are subject to the same standards and compete on an equal basis,” he said.

On a practical level, Property Casualty Insurers Association of America President and CEO David Sampson said the process of how a pre-emption would be established was a concern for his group. “This bill would, for the first time, give this potential federal entity pre-emptive authority over state insurance laws as an administrative process rather than as a legislative one,” he said. “This creates uncertainty in an industry that relies on relative statistical certainty for its very existence.”

By using the legislative process, Sampson said, pre-emptions would be better defined and better understood. “The legislative process is the most appropriate way of answering questions such as what happens to existing structures like the McCarran-Ferguson Act,” he said.

Additionally, Sampson noted, given that pre-emptions are tied into treaties, the fact that the U.S. does not have treaties in force with every country could lead to state laws being pre-empted in some cases but not others. “Thus, pre-emption may not apply equally in all states or to all policyholders.”

Pre-emption, as outlined in the bill, did receive the strong support of the Reinsurance Association of America, with Tracey Laws, RAA senior vice president and general counsel, calling the provision “critical” to ensuring that U.S. policy on international issues is applied uniformly throughout the country.

“To do otherwise would perpetuate the current patchwork system of regulations and undermine the ability of the U.S. to effectively participate in the international arena,” she said, “including in the ability to reach international agreements on insurance policy issues.”

Given the shortened congressional calendar due to the federal elections set for November, the legislation has a small window of time to move through the House and Senate, where no companion bill has been introduced. Kanjorski noted during the hearing the “terrible time constraints” facing the bill, and expressed a desire to move it through the committee “in the near future.”