House Insurance Subcommittee Takes On Optional Federal Charter Debate

The House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises began on Wednesday, October 3, what will be a series of hearings on the need to reform the insurance industry's regulatory regime. According to subcommittee Chairman Paul Kanjorski (D-PA), the question is no longer if the regulatory structure should be fixed, but how to achieve reform. At the center of the debate is whether or not Congress should adopt legislation (H.R.3200 and S.40) that would create an optional federal insurance charter for life and property/casualty insurance companies as well as agents and advisors. NAIFA has reported extensively on the specifics of the OFC proposals, and more details are available at www.naifa.org/advocacy/irr.

Witnesses testifying before the subcommittee represented different sectors of the industry. NAIFA, which is the largest life insurance agent association, did not testify, because it remains neutral on the subject of an OFC. Feedback from NAIFA membership indicates it is split over the idea of a federal regulator. NAIFA members who support the OFC believe it will create complete regulatory uniformity and will ease the duplicative and costly licensing and compliance problems associated with doing business across state lines. NAIFA members who oppose the OFC view the federal government as a potentially onerous regulator subject to forever-shifting political winds, in addition to being too far removed from policy holders at the local level. As for the remainder of the insurance industry, the support or opposition to an OFC is equally split.

The following witnesses spoke at the hearing (click on the link to read their testimony):

Pro-OFC:

• Mr. Christopher M. Condron, chairman of the board and chief executive officer of AXA Equitable Life Insurance Company, on behalf of the American Council of Life Insurers (ACLI)
• Mr. Albert R. Counselman, president and chief executive officer of RCM&D Inc., on behalf of the Council of Insurance Agents and Brokers (CIAB)
• Mr. William H. McCartney, senior vice president, insurance regulatory policy of the United Services Automobile Association (USAA), on behalf of the American Insurance Association (AIA)

Anti-OFC:

• Mr. Alex Soto, CPCU, ARM, president of InSource Inc., on behalf of the Independent Insurance Agents and Brokers of America (IIABA)
• Mr. John Bykowski, president and chief executive officer of SECURA Insurance, on behalf of the National Association of Mutual Insurance Companies (NAMIC)
• The Honorable Walter Bell, commissioner of the Alabama Department of Insurance and president of the National Association of Insurance Commissioners (NAIC)

The three-and-a-half hour hearing facilitated a long discussion of what many within the insurance world believe is the single biggest legislative and regulatory issue the insurance industry faces. Chairman Kanjorski expressed his desire to consider all policy options for reform before taking on any specific legislative approach, such as the OFC. Chairman Kanjorski also signaled that he wants to create bi-partisan member-driven task forces to address the different areas in need of reform, such as speed-to-market of insurance products and the streamlining of producer licensing across state lines.

The most notable exchange during the hearing took place between the former chairman of the subcommittee, Richard Baker (R-LA), and NAIC President Walter Bell. During his tenure as chairman, Rep. Baker presided over approximately 15 hearings on this issue and ultimately took the lead in developing a middle-of-the-road approach to regulatory reform. The approach known as the draft "SMART Act" would have used congressional action to prompt reform of nearly every facet of the state insurance regulatory system, but would not have created a federal insurance regulator. The SMART Act concept was supported in principle by NAIFA at the time it was unveiled and continues to be supported by many OFC opponents such as the IIABA and NAMIC. Unfortunately the SMART Act was never introduced as legislation, but most OFC opponents continue to tout the concepts of the SMART Act as the best means for reform. Rep. Baker, however, made clear that he has moved away from supporting that approach, because he is now frustrated with the NAIC's failure to adequately address many regulatory inefficiencies that persist at the state level. Rep. Baker noted many quotes from NAIC witnesses he heard from during his tenure as chairman. Repeatedly, he was told that inefficiencies of the state system were not consumer friendly and the NAIC needed two to three years to meet its goals for improving uniformity among the states. Baker noted that more than seven years later little progress has been made. Baker also requested a monthly progress report on the NAIC's Interstate Compact, which has been touted as one of the NAIC's biggest regulatory reform achievements. Baker expressed skepticism that the Interstate Compact is as successful as the NAIC has reported.

Overall, based on the subcommittee members' statements during the hearing, support for an OFC is slim, but interest in the subject is growing. Subcommittee staff reported to NAIFA that the next hearing on this issue has not yet been set, but they would like to hold another hearing this fall if the schedule permits. The purpose of the next hearing will be to hear additional points of view from industry representatives.

Your Role

Insurance Regulatory Reform is a very important issue and member education and feedback is critical. NAIFA's Program in a Box #21, "Insurance Regulatory Reform," is a panel discussion on this topic. Filmed in October 2006, the PIB features six industry professionals: NAIFA 2006-2007 President John Davidson, LUTCF, FSS; former NAIFA CEO David Woods, CLU, ChFC, LUTCF; NAIFA Vice President and General Counsel Michael Gerber; NAIFA Director of Federal Relations Jill Edwards; former NAIC President and Superintendent of Insurance for the State of Maine Alessandro Iuppa; and ACLI COO Mike Hunter. In a 40-minute video they discuss one of the most important topics facing NAIFA members today, Insurance Regulatory Reform (IRR), how IRR will determine the future regulatory structure of our industry and how it will impact the way each and every NAIFA member will be positioned to serve their clients. At the conclusion of the video, the moderator is encouraged to facilitate a discussion of the topics covered by the panelists. Feedback forms are provided for both the moderator and the PIB participants. Those forms should be collected by the moderator and mailed to NAIFA. For further details, please refer to the materials provided with PIB #21.

Back to October 15, 2007, NAIFA Frontline