House Subcommittee Holds Hearing Exploring All Sides of Insurance Regulatory Reform

The U.S. House Financial Services Subcommittee on Capital Markets, Insurance, and Government-Sponsored Enterprises held a hearing on April 16 entitled “Examining Proposals on Insurance Regulatory Reform,” which explored potential options for reforming and improving the state of the insurance regulation. The April 16 hearing was the third in a series looking at this topic. Prior hearings had focused on the need for regulatory reform, whereas the latest hearing focused on specific options for reform.

The Subcommittee heard from two separate panels of witnesses. The first panel explored insurance from a regulator standpoint, featuring a representative from the National Association of Insurance Commissioners (NAIC) and a representative from the Department of Treasury. The second panel consisted of five industry representatives discussing various facets of insurance regulation.

The Kanjorski Proposal:

Subcommittee Chairman Paul Kanjorski (D – PA) began the hearing by stating that he believed Congress needed to take some action on insurance regulation, and whether or not the federal government directly regulated insurance, it was vitally important that Congress educate itself on matters relating to the insurance industry. With that, Kanjorski announced that he would be introducing legislation to create an Office of Insurance Information within the Department of Treasury to serve not as a federal regulator of insurance, but rather as an advisor to the Administration and to Congress on both domestic and international insurance matters. The bill—which has since been introduced as the Insurance Information Act of 2008—closely follows the proposals outlined in the Treasury Department’s Blueprint for a Modernized Financial Regulatory Structure, which calls for the establishment of an Office of Insurance Oversight as an interim step toward the creation of an optional federal charter for insurance. To learn more about H.R. 5840, please read the article on this topic in this issue of GovTalk.

The Regulators’ Perspectives

The first witness was Treasury Assistant Secretary David G. Nason. Nason’s testimony focused on the recently-released Treasury Department Blueprint for a Modernized Financial Regulatory Structure, in which Treasury recommends the creation of an optional federal charter (OFC), and the formation of a federal office of insurance oversight to work in conjunction with the present state-based system. According to Nason, “In Treasury’s view, the establishment of a dual federal/state system with an OFC provides the best opportunity for the establishment of a modern and comprehensive system of insurance regulation.” In the opinion of the Treasury Department, an OFC would help improve product innovation, reduce regulatory costs, and enhance competition, not only domestically but also in the global marketplace, an area in which it believes the U.S. insurance industry is suffering.

Discussing insurance regulation from a state perspective was New York Superintendent of Insurance, Eric Dinallo, testifying on behalf of the NAIC. Dinallo acknowledged that the current state-based system was not perfect, and that steps needed to be taken to make improvements, but explained that the NAIC does not believe that an optional federal charter is the way to achieve this goal. He stated that, “Optional regulatory regimes lead to regulatory arbitrage and gaps in oversight. They are not good for anyone, least of all consumers.” Superintendent Dinallo noted that there are certain aspects of insurance regulation which could benefit from federal assistance (such as producer licensing) but for the most part, “The necessary changes and reforms can be made within the current structure or by adding to it.” Dinallo went on to list areas of insurance regulation where state regulators have either remained strong, or have made great strides towards improvement, including strong consumer protection, maintenance of solvency, and improved speed-to-market conditions. Superintendent Dinallo concluded his testimony by asking the Subcommittee members for their help “…maintaining a system of oversight that is good for the companies and good for consumers.”

The Industry Perspectives:

The first industry witness was Lawrence Mirel, testifying on behalf of the Self-Insurance Institute of America. Mirel discussed his organization’s support for the recently introduced “Increasing Insurance Coverage Options for Consumers Act of 2008,” which seeks to strengthen and modernize the Liability Retention Act of 1986 by expanding the coverage of risk-retention groups.

Next to testify was Alastair Shore, speaking on behalf of the CUNA Mutual Group, the American Insurance Association (AIA), and the American Council of Life Insurers (ACLI). Mr. Shore spoke in favor of the National Insurance Act of 2007 (H.R. 3200), a bill which would create an optional federal charter for insurance regulation. Mr. Shore called H.R. 3200 “…a strong consumer protection bill, which focuses on a robust centralized system that emphasizes safety, soundness and consistent market conduct regulation,” and added that the bill would, “address the increasing cost and efficiency burdens that our disjointed state insurance regulatory system imposes on insurers and consumers alike.”

Third to testify, representing The Independent Insurance Agents & Brokers of America (The Big “I”) was Tom Minkler, who expressed the Big I’s support of H.R. 5611—The National Association of Registered Agents & Brokers (NARAB) Reform Act. Minkler said the bill was the best means of streamlining nonresident insurance agent licensing without interfering with state regulatory regimes. Mr. Minkler emphasized the importance of incremental legislation like NARAB II that would improve upon, and not replace, state regulation.

Next to testify was Frances Arricale, Executive Director of the Interstate Insurance Product Regulation Commission (IIPRC). Ms. Arricale discussed the Interstate Insurance Compact, and the progress it has made in the last few years. She said that, through enactment of the Compact in 31 jurisdictions, speed-to-market conditions for insurance products have greatly improved, and to date, 39 Uniform Standards have been adopted. Ms. Arricale said that, “The Compact represents a successful state-based modernization reform initiative that benefits consumers, industry, and insurance regulators.”

The final person to testify at the hearing was Donna Pile, representing the National Association of Professional Insurance Agents (PIA), who discussed the importance of the National Insurance Producer Registry (NIPR). Ms. Pile stated that, “through NIPR’s non-resident licensing service, producers and insurers can apply for a non-resident license in 45 jurisdictions and receive confirmation within a few business days.” Ms. Pile went on to say that, when discussing uniform licensing standards, a system was already in place, and almost fully-functional, “so there is no need to build it again from scratch,” and that progress will continue to be made until all jurisdictions are participating in NIPR.

What’s Next?:

Chairman Kanjorski announced that his Subcommittee will hold future hearings on the issue of insurance regulatory reform. NAIFA staff will continue to keep you informed of these hearings.

For more information on NAIFA’s position on insurance regulatory reform and modernization, please visit the IRR section of our website at www.naifa.org/irr

NAIFA Staff Contact: Jill Edwards, Director of Federal Relations at jilledwards@naifa.org or 703-770-8158.