NAIC To Support OII, But NCOIL Demurs

o Ensuring that any preemptive power would be limited explicitly to covered agreements with foreign governments and would not impede state regulation of an insurer’s rates, premiums, underwriting practices, coverage requirements or the application of state antitrust laws.

o Defining a covered agreement as applying solely to future agreements that would protect U.S. insurance consumers and are substantially equivalent to U.S. protections.

o Affording several opportunities to the states and other interested parties for notice and comment on a proposed international agreement and to address inconsistent insurance measures. Any preemptive determinations also would be subject to judicial review and to the Administrative Procedures Act.

o Requiring the Treasury to consult with an advisory board that would include state insurance regulators and a state legislator, in determining any stay of preemption.

o Requiring the Treasury to prevent preemption of a state insurance measure if necessary to protect policyholders and claimants and for the safety and soundness of the market, or if the preemption would result in a gap in financial or market-conduct regulation, or if the preemption calls for establishing any Federal supervisory authority.

An industry lawyer said several industry trade groups had also voiced concern about the broad preemption language contained in the original bill, introduced by Rep. Kanjorski in April. He introduced the bill in response to a Treasury report that recommended creation of such an office as an interim step to establishing a federal charter option for insurers.

“Those initial preemption provisions–while many would welcome them–also created hard-to-handle regulatory enforcement issues,” said the lawyer, who asked not to be named because he was involved in the talks.

For example, he wondered what might happen if a state refused to adopt and enforce a standard adopted by the federal government under an international agreement affecting insurance, such as the financial accounting standards proposed in Basel II.

Under the proposed law, federal insurance authorities would have no enforcement authority, nor the authority or resources to examine insurance companies.

That led critics within the industry to voice concern about the original language, because it raised the specter that an act of preemption “could create a regulatory vacuum.”

In its letter to members of Congress, the NCOIL expressed its “staunch opposition.”

“NCOIL will not support a bill that will lead to a dangerous optional federal charter for insurance regulation and that will unravel the strong consumer protections embedded in state-based insurance regulation,” states the letter, which is signed by NCOIL President and state representative Brian Kennedy, D-Hopkinton, R.I., and 4 other NCOIL officers.

The NCOIL “is strongly opposed to the preemptive nature of H.R. 5840,” the letter states. The National Conference of State Legislatures, Washington, also opposed the measure, according to the letter.

The bill is expected to be raised in the House next week, possibly as a suspension vote, according to Mike Humphreys, a spokesman for NCOIL. A suspension vote is a fast-track way to advance a bill. It requires a two-thirds vote, limits debates and does not permit amendments to be added to the bill.

Also next week, the House is expected to act on legislation recreating the National Association of Registered Agents and Brokers, H.R. 5611.