It is unlikely that the much-awaited Federal Insurance Office report on reforming and modernizing state insurance regulation will be unveiled for several weeks.
However, signs are emerging that one component of the report will be resurrection of a proposal unveiled in 2004 that was embodied in legislation called the SMART Act, or State Modernization and Regulatory Transparency Act.
This means that an administration facing a tough re-election battle will acknowledge that the insurance industry needs modernization and greater uniformity, but dump the onus of accomplishing that on Congress.
It would do so by forcing Congress to take the political heat for establishing federally-mandated standards for uniformity that states would have to comply with by invoking the federal government’s power to preempt state laws.
By resurrecting the SMART Act, the administration would be able to point out that the starting point for modernization would be legislation sponsored by the then-Republican leadership of the House Financial Services Committee, Rep. Mike Oxley, R-Ohio, chairman of the committee, and Rep. Richard Baker, R-La., a senior member of the committee and chairman of its Capital Markets Subcommittee.
That would diminish the argument likely to be advanced by state’s rights supporters and ultraconservative Republican critics that the report’s recommendations constituted a power grab by the federal government.
In other words, according to several industry officials, it would likely insulate the administration from use of the report as a weapon against President Obama in the fall election.
The SMART Act, its supporters said, provided a “road map” for modernization and standardization of insurance industry oversight that would leave the day-to-day burden of regulation in state hands.
The bill would, in theory, have created a “state-national partnership” on insurance oversight. Among other steps, the bill would reform agent licensing rules and set uniform market conduct standards and speed-to-market initiatives.
It would also impose commercial and personal lines property and casualty insurance rate and form modernization.
Industry officials would likely support the proposal in theory because this would call for a phased move to an open competition model that would allow companies to raise and lower rates without prior regulatory approval.
Supporters of the current system voiced vehement opposition to the SMART Act proposal, first unveiled in 2004. For example, in a 2005 report, the National Association of Insurance Commissioners said the legislation would substantially and negatively impact state regulatory authority to supervise property/casualty, life, and health insurance, as well as reinsurance, by establishing federally-mandated standards and preempting state laws.
“As a result, insurance consumers would be denied the benefits of important state consumer protection laws and regulations,” an NAIC study said.
The bill was hotly debated for several years, but interest in it waned when Democrats took control of Congress in 2007, and both Oxley and Baker left Congress within several years.
Support for change then was manifested in legislation that would create an optional federal charter, which never came up for a vote in either House.