U.S. House Holds Financial Services Subcommittee Hearing On The Need For Insurance Regulatory Reform

The U.S. House of Representatives Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises held a hearing today in Washington D.C. on the need for insurance regulatory reform.  The hearing represents the first in a series regarding insurance regulatory reform issues.

“The insurance regulatory structure has remained relatively constant throughout our Nation’s history, but nearly all interested parties now agree that some sort of regulatory reform is appropriate given global competitiveness, market pressures, and consumer demands. This hearing will explore why there is a need for insurance regulatory reform,” said Chairman Kanjorski in a House press release on the matter. “Insurance plays an integral role in the lives of American families and American businesses every day, protecting buildings, assets, loved ones, livelihoods, and communities. As we examine the necessity for updating and modifying our Nation’s insurance system, we therefore must take into consideration the needs of and protections for all consumers.”

The hearing witness list and the links to the prepared testimony of each respective witness are below:

The Honorable Walter Bell, Commissioner, Alabama Department of Insurance, President of the National Association of Insurance Commissioners
Mr. John Bykowski, President and Chief Executive Officer, SECURA Insurance
Mr. Christopher M. Condron, Chairman of the Board and Chief Executive Officer, AXA Equitable Life Insurance Company
Mr. Albert R. Counselman, President and Chief Executive Officer, RCM&D Inc.
Mr. William H. McCartney, Senior Vice President, Insurance Regulatory Policy, United Services Automobile Association (USAA)
Mr. Alex Soto, CPCU, ARM, President, InSource Inc.

Congressman Paul Kanjorski, Chairman, provided the opening remarks on this first of a series of hearings to be held concerning modernizing the insurance regulatory system.  Outlining that the goal of these hearings is first to establish the need for reforms, identify the specific reforms required, and then to address policy options to institute reforms, Chairman Kanjorsky reminded that as part of this ongoing process, different venues will be utilized to address specific issues.

The Chairman remarked that while the Committee sees a need to make the insurance regulatory process more uniform and more responsive, many questions need to be addressed prior to the recommendation or implementation of reforms at the national level.   Additionally, the reforms must balance the needs of consumers, agents, insurance companies, and the states themselves.

Witnesses at this first hearing represented the differing points of view of insurance regulators and the insurance industry.  The Honorable Walter Bell, Commissioner, Alabama Department of Insurance, tesitfied on behalf of the National Association of Insurance Commissioners (“NAIC”), of which he also is president.  He pointed to the many steps the NAIC has made to provide a more unified, streamlined process for insurance companies and producers to deal with the various jurisdictions, including the Insurance Compact, which has been implemented in thirty states; SERFF, an online rate filing mechanism used by most states; standard uniform producer licensing in all jurisdictions, and the implementation of the NAIC Web site providing help with state-specific licensing requirements.  Mr. Bell and the NAIC support the continuation of the existing state regulatory structure.

Mr. John Bykowski, representing the National Association of Mutual Insurance Companies (“NAMIC”), supports a reformed system maintained at the state level, not the federal level.  Additionally, he spoke out against the Optional Federal Charter as not providing a true national solution and not really being optional, based on the difficulties in switching charters after an insurance company makes its initial choice.

Mr. Christopher Condron, representing the American Council of Life Insurers, is in favor of a federal-based regulatory system. Citing the change in the degree of business risk now faced by life insurance companies, he stated that the focus of the life insurance industry is no longer on providing a benefit to insureds at death, but rather on asset protection so insureds do not outlive their assets. Further, problems with state regulatory systems restrict the ability of insurance companies to introduce new products into the market.  Additionally, Mr. Condron cited a University of Georgia study which posited that the state regulatory system would cost $6 billion more to administer than a unified federal system.

Mr. Albert Counselman, who represented the Council of Agents and Brokers, pointed out the problem the states have in dealing with an international marketplace.  The insurance industry has transformed over the past thirty-five years into a global business.  He supports the National Insurance Act of 2007, which is currently in the House.  Mr. Counselman further supports the complete deregulation of rates and forms for the commercial insurance market.

Mr. William McCartney, representing the American Insurance Association, supports the concept of an Optional Federal Charter.  Mr. McCartney points out the primary goal of insurance regulators is to maintain the good financial condition of insurers  Therefore other issues concerning consumer protection and increased competition in the marketplace are not adequately addressed.

Mr. Alexander Soto represented the Independent Insurance Agents and Brokers of American (The Big “I”).   Mr. Soto feels the current system does work to protect consumers; however, it is slow and inefficient.  As such, he sees a need for federal action to help reform the system, targeted to interstate issues in key areas such as licensing.  Mr. Soto is against the Optional Federal Charter, as this would necessitate dealing with two different regulatory systems.

Chairman Kanjorski summarized that all panelists agree the current system needs some work.  However, he does not want to create a huge federal bureaucracy, which could cause more harm than good.  Rather, he would like specific initiatives to target specific problem areas.  Chairman Kanjorski requested that the top issues should be given priority by the Subcommittee.  The panel listed key problem areas focused on the time to get new products to market, the consistency, or lack thereof, of reserve requirements, and the inability of agents to work nationally. 

We will continue to monitor the proceedings of the Subcommittee and provide details as they become available. Should you have any questions or comments, please do not hesitate to contact this office.