Legislators expressed profound disappointment over what they maintained was a betrayal by state insurance regulators in testimony before Congress, but also spoke of forging ties that will bond both together as the possibility of federal regulation grows.

The dialogue took place during the summer meeting of the National Conference of Insurance Legislators here.

During the session billed as a dialogue between state insurance legislators and regulators, issues that arose included a discussion of testimony by state insurance regulators in Congress regarding the creation of an Office of Insurance Information as well as a more general discussion of the relations between the 2 groups.

The OII testimony was made during a June 10 hearing of the House Financial Services Subcommittee on Capital Markets. During that hearing, the NAIC expressed “conditional support” for an OII provided that powers granted to the OII were not expanded during the legislative process. The conditional support is dependent on any bill not impacting insurance consumers in a negative way, NAIC testimony indicated. (See NU, June 16.)

NCOIL President and state Rep. Brian Kennedy, D-Hopkinton, R.I., said that he was “baffled” by the conditional support of a bill that could pre-empt state insurance regulation.

In response, West Virginia insurance commissioner Jane Cline, and NAIC vice president, said that in order for NAIC to shape possible legislation, it had to be represented during any discussion on a bill so that it would not be “shut out of the discussion.”

Kennedy then asked if the NAIC had actually taken a vote of its full membership on the position and was told that the NAIC’s government relations leadership council had voted on it and that full membership had not voted on it.

Rep. Robert Damron, D-Frankfort, Ky., noted that many of the states’ insurance commissioners were “a little surprised” by the NAIC’s position.

“I felt sold out,” said North Dakota Rep. George Keiser, R-Bismarck, N.D. “I’m not looking for a seat at the table.” He said that if state legislators and regulators are going to oppose federal oversight, then a clear position has to be taken. “If we’re going to have a federal charter, then let them have it. Let them take the calls you take. Let’s go all the way or let’s maintain state control.”

And, Keiser continued, “I hope in the future that we can work as partners. No one is well served by fighting.”

For instance, Keiser noted that if structured properly, the central depository for market conduct data that the NAIC is trying to put in place makes sense.

The NAIC’s Cline responded by saying that the number of insurance commissioners present at NCOIL’s meeting was indicative of NAIC’s desire for a cordial relationship among both groups.

New York state Sen. William Larkin, R-39th District, added his disappointment in the NAIC’s conditional position, noting that “we’re the representatives of the people” and charging that the NAIC is a 501(c) 3 that is being run by its staff rather than state insurance commissioners. He added that if a federal charter is put in place, New York stands to lose $3.3 billion in revenue and the jobs of over 1,400 employees at the New York insurance department.

In response, to criticism of the NAIC, Mary Jo Hudson, Ohio director of insurance, responded, “I don’t agree with some of the [NAIC's] positions. I think they are on the margin.” But, she added, aside from some policy issues, the services such as System for Electronic Rate and Form Filing that the NAIC provides states are bargains that would be too costly for states to replicate on their own.

During an earlier state-federal relations committee session, NAIC President and Kansas Commissioner, Sandy Praeger, said that the organization is opposed to “unnecessary federal expansion. We have good, efficient state regulation. We do think that an OFC [optional federal charter] could lead to regulatory arbitrage and a race to the bottom.”

And, she noted that an OFC would result in the loss of premium tax for states. She said that 7% of these taxes are used for insurance departments and the remainder goes into states’ general budgets.

However, she continued, regulatory modernization without losing consumer protections does have a place.

And, she continues, an OII can actually protect state authority by establishing guidelines such as the process for regulating international agreements. Currently, the federal government can preempt states on international agreements, Praeger explained.

Praeger said that she had heard about the argument that support for an OII is letting the “camel’s nose under the tent,” but countered that conditional support is really preventing the camel’s nose from becoming larger.