Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, suggested that historic legislation could be passed this year that would begin the process of creating a greater federal role in insurance regulation. But he also cautioned last week that “the 101st senator” is beginning to emerge and “that’s the clock.”
Dodd made his comments at a hearing before his committee on the status of insurance regulation.
At the same time, House floor action on the Insurance Information Act of 2008, or H.R. 5840, and the National Association of Registered Agents and Brokers Reform Act, also known as H.R. 5611, was delayed until September.
H.R. 5840 would create an Office of Insurance Information within the Treasury Department and H.R. 5611 creates a streamlined system for non-resident licensing of insurance agents.
Action was delayed after Rep. Jackie Speier, D-Cal., voiced concerns about whether the legislation would inadvertently preempt Proposition 103, a 1988 ballot initiative that mandates a prior approval auto insurance rating system for California. On the property-casualty side it rolled back auto rates, and on the life side it repealed the state anti-rebating law.
Dodd said he would be “very interested” in moving forward “with something along the lines that would be narrower [than an optional federal charter].”
Specifically, that would include legislation creating an Office of Insurance Information within the Treasury Department and reforming regulation of the surplus lines industry.
However, since neither the surplus lines nor the OII bills have been acted on by the committee, a lobbyist cautioned that “they will only have a couple of weeks to put together such a deal.”
“Once that 101st senator shows up, things get very, very difficult to move forward on,” Dodd said. “But I appreciate the importance of a couple of these issues on which I think there is some consensus.”
He added that he would like to do a survey of the committee “and my sense is they may be willing to move on some of this that we have talked about this morning so I will have to get back to you all on that as I ask my staff to review with their colleagues the possibility of trying to get something done before we adjourn in September.”
At the hearing, Sen. Richard Shelby, R-Ala., ranking minority member and one of the most powerful members of Congress on insurance issues, and Sen. Bob Corker, R-Tenn., both said they were open to support for an optional federal charter, although Corker did voice some concerns.
Shelby voiced his growing interest in an OFC in his opening statement, saying that in the 2 years since the last hearing on insurance, “developments in our insurance markets, as well as regulatory reforms abroad, have strengthened the case that our insurance regulatory structure is out of date.”
His immediate concerns are developments in the “crumbling” bond insurance market. “Because the financial problems of the bond insurers have impacted not only federally regulated institutions, but also our overall economy, I believe that closer scrutiny of bond insurance regulation by this committee is warranted.”
He also cited insurance company investment in mortgage-back securities, noting that while no insurance company “has yet failed during the turmoil in our credit markets, recent economic history suggests it should never be considered outside the realm of possibilities.”
Sen. Mel Martinez, R-Fla., a sponsor of legislation reforming the surplus lines industry, told National Underwriter outside the hearing that Dodd’s comments marked the first time he had indicated an interest in moving insurance regulation legislation through the Congress this year. “Yes, I am encouraged,” Martinez said.
Dodd acknowledged in the hearing that “a few years ago, even the notion of a federal charter would have been met with vehement opposition. It was the third rail.”
But, he again sought both in his explicit comments and in questions to industry, state regulatory and consumer representatives at the hearing, to remark on the differences between life and property-casualty insurance, and whether life insurance lent itself more to federal regulation than property-casualty insurance.
“I have always felt a case could be made for an OFC for life, but that you can make a very good case that, when it comes to p-c, there are distinctions in tort law,” Dodd said.
At the hearing, John Pearson, chairman, president and CEO of Baltimore Insurance Company, testified on behalf of the American Council of Life Insurers that an OFC “would create a more innovative, efficient and competitive life insurance industry that functions under a strong, nationwide consumer protection standard for insurers choosing the federal option.”
Pearson added that in the 2 years since the banking panel last held a hearing on insurance regulation, “the case for regulatory reform has become even stronger as domestic operational concerns have been joined by pressing international regulatory and competitive issues.”
Pearson was selected to represent the ACLI because the trade group was concerned that arguments would be presented at the hearing that small insurers would not benefit from an OFC, and because he heads Forum 500, a group within the ACLI that represents the interests of small insurers.
In comments in an op-ed article in a Washington-based political tabloid released the same day, Pearson said, “Conventional wisdom says that smaller competitors should prefer local, state regulation to federal regulation.”
State regulators, he said, are supposed to be more sensitive to the concerns of smaller companies and more responsive than big federal bureaucracies.
But, he said, “The insurance regulatory system often defies conventional wisdom.” The creation of a federal insurance charter, as envisioned in legislation introduced in the House and Senate, “is vital if small life insurance companies are to remain competitive in the marketplace.
“The current state-by-state insurance regulatory system is unnecessarily complex and costly,” he added. “For small life insurance companies, this represents a competitive disadvantage.”
In defending state regulation, Steven Goldman, commissioner of banking and insurance in New Jersey, said, “The current U.S. insurance regulatory scheme is strong, and our track record is regarded internationally as the benchmark by which other supervisory systems are measured.”
He added that the insurance industry in the U.S. has “grown exponentially in recent decades in terms of the amount and variety of insurance products and the number of insurers,” and said that the industry now has combined annual premiums exceeding $1.4 trillion, and that its share of the U.S. economy has grown from 7.4% of gross domestic product in 1960 to 11.9% in 2000.
“Clearly, this is not an industry that has suffered under state insurance supervision,” Goldman argued.