The National Conference of Insurance Legislators, the Consumer Federation of America and academic experts have been sharing their views on Obama administration financial system proposals this week.
The rush came as the House Financial Services Committee scheduled a series of hearings on financial system legislative efforts.
Members of the executive committee of NCOIL, Troy, N.Y., have approved a statement reaffirming NCOIL’s commitment to state insurance oversight.
“While state legislators recognize the need for targeted financial services reform, we believe that any reform should avoid preempting successful state insurance oversight,” New York state Sen. James Seward, R-Otsego, N.Y., NCOIL’s president, says in a statement. “State insurance regulation is one of the bright spots in the current otherwise bleak regulatory landscape and should be advanced, not pared back.”
NCOIL says in its resolution that it objects to Obama administration suggestions that the proposed Consumer Financial Protection Agency could have jurisdiction over credit-related insurance products.
NCOIL has resolved that “any Financial Product Safety Commission, Consumer Financial Protection Agency, or similar new or existing federal agency should not have direct or indirect jurisdiction over insurance products–including credit, mortgage, and title insurance–and/or insurance-related matters.”
Travis Plunkett, legislative director for the Consumer Federation of America, Washington, is supporting the idea of putting credit-related insurance products and similar products that are not technically defined as insurance products under CFPA jurisdiction.
Plunkett was scheduled to testify today at a hearing on consumer groups views on recent legislative proposals that was organized by the House Financial Services Committee.
Traditionally, states have done a poor job of regulating credit insurance rates, with the loss ratio for credit life insurance averaging just 47% in 2007, and the average loss ratio for credit disability insurance standing at just 37%, Plunkett says in written testimony submitted to the committee before the hearing began.
But Plunkett acknowledges that the loss ratio for mortgage guaranty products increased to 135% in 2007, from less than 25% in earlier years, as a result of the start of the mortgage crisis.
In some cases, Plunkett says in the written testimony, banks and other lenders sell “debt cancellation contracts” that may cancel debt when consumers die, become disabled or meet other criteria.
“To a consumer, DCCs and credit insurance are very similar – or even identical – products,” Plunkett says in an appendix to the written testimony. “The major difference between credit insurance and DCC is in regulatory oversight.”
Federal and state regulators have decided that, because DCCs are contracts between lenders and consumers, without the involvement of insurers, they are something other than insurance arrangements, Plunkett says.
“In practice,” Plunkett says, “DCC programs are administered in almost the same manner as credit insurance programs.”
Credit insurers sell and administer many DCC programs, Plunkett says.
“The difference in regulatory oversight of DCC versus credit insurance is dramatic,” Plunkett says. “With credit insurance, the products (policy forms) must be approved by state insurance regulators prior to use and the rates subject to prima facie maximum rate regulation. A credit insurer wishing to offer a national program must obtain approvals in all states and comply with different rates in all states as well as variations in product requirements among the states.”