Introduction of several bills before Congress departed for a short recess and recent comments by the Obama administration indicate the stage is set for a contentious, perhaps historic, and probably lengthy, debate on future regulation of the insurance industry.
One of the bills introduced, H.R. 2554, would create a system for streamlined non-resident insurance agent and broker licensing.
Another, H.R. 2571, would modernize and reform regulation of the non-admitted and reinsurance industry, otherwise known as the surplus lines market.
And the third, H.R. 2609, introduced without fanfare, by Rep. Paul Kanjorski, D-Pa., chairman of the Capital Markets Subcommittee of the House Financial Services Committee, would create an Office of Insurance Information within the Treasury Department.
All were introduced on May 21, as Congress departed for a brief Memorial Day recess.
Versions of all three bills have passed the House Financial Services Committee, and both the agent and broker legislation and the surplus line bills have passed the House.
The primary difference between the three bills is that the agent and broker bill, which would recreate the National Association of Registered Agents and Brokers, and the surplus bills, would leave the states in total control of insurance regulation, where it has always been.
The OII bill, however, would impose federal regulation on insurance for the first time by giving the federal government specific authority to set federal policy on international insurance matters, among other provisions.
It would also create an office within the Treasury Department that would for the first time give a federal agency the power to collect and analyze data on insurance; advise the Secretary of the Treasury on major domestic and international policy issues; report to Congress every two years; and ensure that state insurance laws remain consistent with federal policy in coordinating international trade agreements.
The bill would also establish an Advisory Group to help inform and advise the head of the Insurance Information Office. Those represented in this group would include state regulators, consumer groups and others parties in the insurance industry.
The bills were introduced as Treasury Secretary Timothy Geithner testified before a House appropriations subcommittee that a broad set of regulatory change proposals should be ready to be unveiled soon by the administration. This could include a new entity with the authority to protect consumers of financial products, he said.
A Treasury spokesman added that the administration has not yet determined whether insurance products would be among the products to come under the umbrella of the new consumer protection entity.
In a statement, Frank Keating, president of the American Council of Life Insurers, which supports legislation creating an optional federal charter for insurance, said Kanjorski’s bill speaks “forcefully about the urgent need for the federal government to develop the expertise and capacity to monitor insurance markets and thus advance the goal of protecting the American economy from threats to the financial system.”
“Life insurance is a $5 trillion industry and affects the lives of more than 75 million American families,” Keating said. “Reform of financial services regulation in the U.S. will be incomplete if the life insurance industry is ignored.”
Eli Lehrer, a senior fellow at the Competitive Enterprise Institute, called the OII bill “simply a commonsense measure.”
He said the federal government, “if nothing else, needs a repository of expertise about insurance. That’s been lacking to date.”
He argued that the National Association of Insurance Commissioners “clearly isn’t up to the task of representing the United States in international forums.”
Under the current system, he said, “Men and women with no international experience whatsoever get picked as our chief negotiators on major international trade issues.
“Even the NAIC itself has endorsed the creation of an office of insurance information,” he said. “Given the collapse of AIG, it’s pretty clear that we need something like this. Even if no broader federal chartering legislation becomes law, I can’t imagine that Congress would turn down a measure this modest.”
Lehrer added that he thinks legislation should go further. “This will move things in the right direction, but it’s only a beginning.”
The uniform agent licensing and surplus lines measures have broad support, and are consistent with the views of supporters of continued state regulation that federal government should only serve to impose “targeted” and very limited reforms of the current state insurance regulatory system.
The agent licensing bill would preserve state insurance regulation and consumer protection provisions. But it would require agents applying for membership to submit to a criminal background check. Currently only 17 states require a federal criminal background check for producers.
In a statement, National Association of Insurance and Financial Advisors President Cliff Wilson said, “In today’s increasingly mobile world, it is a disservice to insurance consumers to have a regulatory system in place that makes it difficult for a consumer to retain their agent when they move to another state.”
The bill makes NARAB membership optional and does not create a federal regulator for insurance or aim to reduce current agent licensing standards, NAIFA officials said.
Wilson said life insurance agents need the bill because varying licensing compliance requirements from state-to-state make it unnecessarily burdensome to follow clients to another state when they move. “As a result, NAIFA members frequently have to refer their clients to another agent.”
As for the surplus lines legislation, it would allow the home-state regulator to monitor a reinsurer’s solvency, make credit for reinsurance determinations the sole jurisdiction of the home-state regulator of the ceding insurer, and protect reinsurers from retaliation from other states.
According to the ACLI, “This simplification will benefit both purchasers and sellers of life reinsurance by clarifying what requirements apply, without reducing solvency protections.”
“H.R. 2571 is a key part of modernizing insurance regulation, but it is only one aspect of a broader puzzle,” said Keating.
“That is why ACLI continues to support enactment of an optional federal charter for insurance regulation to more fully address the limitations of the current regulatory system for insurers and reinsurers and implement a single, comprehensive set of standards that will better serve consumers and provide expanded opportunities for insurers and reinsurers,” he added.