House Panel Okays 3 Insurance Measures

National Underwriter--July 10, 2008

BY MATT BRADY

A House Financial Services Subcommittee approved three bills yesterday aimed at improving the insurance regulatory system and increasing the availability of coverage through risk retention groups.

Members of the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises approved the measures by a voice vote. Those passed included the Insurance Information Act, or HR 5840; the National Association of Registered Agents and Brokers Reform Act, also known as HR 5611; and the Increasing Insurance Coverage Options for Consumers Act, or HR 5792.

The OII bill was introduced by the subcommittee’s chairman, Rep. Paul Kanjorski, D-Penn., who noted that it “promoted an idea that I have long held, that the federal government should have an in-house expert on insurance issues.”

Rep. Kanjorski offered an amendment making changes designed to assuage the concerns voiced by some critics of the bill. The amendment created a specific role for the National Conference of Insurance Legislators on the OII’s advisory board, and language giving the OII authority to preempt state laws was clarified to apply, he said, under “very narrow circumstances and with a very detailed procedure.”

Rep. Chris Shays, R-Conn., said the bill struck a “careful balance” between those who believe in federal oversight and those who would keep insurance regulated by the states.

In touching on the issues of state versus federal regulation, the bill drew a mixed reaction from industry groups.

Marc Racicot, president of the American Insurance Association, said the panel’s approval “is a recognition that an immediate need exists for federal expertise regarding the important national and international insurance trends in today’s rapidly changing and globalized marketplace.”

However, David Sampson, president of the Property Casualty Insurers Association of America (PCI), expressed concern regarding the preemption authority the OII would have, although he noted that the PCI has not taken a formal position for or against the bill.

“We advocate that any preemption of state laws, if necessary, be accomplished by legislative action and not simply left to be developed through an administrative procedure,” Mr. Sampson said.

“The legislative process is the most appropriate way of answering public policy questions, such as how to harmonize this proposal with existing laws like the McCarran-Ferguson Act,” he added.

The second bill approved, which revived the NARAB concept for ensuring reciprocal licensing of agents originally conceived of in the Gramm-Leach-Bliley act nearly a decade ago, was introduced by Rep. David Scott, D-Ga., and Geoff Davis, R-Ky., and both noted that it had drawn significant support from both sides of the aisle, as well as backing from state insurance regulators and agents’ groups.

Rep. Scott noted that the bill had been changed to give state regulators a majority, albeit a slim one, on the board tasked with overseeing NARAB, and also noted that the bill was clarified to ensure that state revenues from licensing fees would not be reduced under the bill.

Rep. Davis said that his experience showed the need for the legislation when as a small-business owner he tried to find a single policy covering several employees across multiple states. “Nearly ten years after Gramm-Leach-Bliley, we’re still in need of progress on this issue,” he said.

Rep. Jackie Speier, D-Calif., voiced some concern regarding the bill, noting that nonresident producers “are not going to be prepared” for her state’s system of consumer protection without being required to study it and be tested beforehand.

Agents groups have supported the measure, and Rep. Kanjorski praised their coming together with regulators to help craft the legislation.

Robert Rusbuldt, president and chief executive officer of the Independent Insurance Agents and Brokers of America, said the NARAB bill was an example of how “targeted reforms” could effectively resolve problems facing the insurance marketplace.

“The most serious regulatory challenges facing our members are the redundant, costly and contradictory requirements that arise when they seek licenses on a multistate basis,” he said. “The NARAB Reform Act solves these problems through targeted reform and modernization of nonresident agent and broker licensing without affecting resident licensing.”

The Council of Insurance Agents and Brokers offered its support for the NARAB bill in a letter to committee members signed by the CIAB leadership.

“When the original NARAB was enacted as a part of Gramm-Leach-Bliley in 2000, the first important steps were implemented to achieve some semblance of reciprocity among varying states,” the CIAB said in its letter.

“But the pace of interstate transactions has far outstripped the pace of reform, and we now need the full implementation of an interstate agent/broker licensing clearinghouse with high standards of professionalism for producers, which will better serve the needs of consumers and ultimately lower the costs of insurance.”

In addition, the panel gave its approval to H.R. 5792, which would expand the Liability Risk Retention Act to allow risk retention groups to offer commercial property-casualty coverage. RRGs are currently limited to providing liability coverage.

The bill, according to Rep. Dennis Moore., D-Kan., who introduced it, would have a “modest but important effect on increasing capacity” under the Risk Retention Act.

In addition, a new provision was added that would require the Government Accountability Office (GAO) to examine whether there is unlawful interference in the operation of RRGs by regulators from states outside the state where they are based.

Dick Goff, president of the Self-Insurance Institute of America Inc., praised the addition, saying that the “single regulator” structure envisioned under the original legislation has been compromised by the states.

“These actions have obviously had a negative impact within the RRG marketplace,” he said.

However, the National Association of Mutual Insurance Companies expressed some concerns that the bill could allow for too great an expansion for RRGs, creating what it sees as an unfair competitive environment.

“Admitted carriers are subject to the myriad of state regulations,” said Jimi Grande, NAMIC’s vice president of government and political affairs. “Allowing RRGs, which enjoy a lesser degree of regulation, to provide additional coverages that are readily available in the marketplace would provide a competitive advantage over traditional, conventionally formed insurers.”

In speaking on the bill, Rep. Moore said that it was intended only to allow RRGs to offer coverage for commercial properties, and that the language used in the legislation had been clarified to indicate as much.