U.S. House Subcommittee Examines H.R. 5840 and Viability of Proposed Federal Office of Insurance Information

Recently, the U.S. House Financial Services Committee Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises (“Subcommittee”) held a Hearing to examine HR 5840, also known as the “Insurance Information Act of 2008.”

HR 5840, introduced by Subcommittee Chairman Representative Paul Kanjorski (D-PA) and Representatives Melissa Bean (D-IL), Dennis Moore (D-KS), Edward Royce (R-CA), and Deborah Pryce (R-OH), would create a federal Office of Insurance Information (“OII”) within the Department of the Treasury to provide advice and expertise on insurance policy to the federal government and Congress.

Representative Kanjorski opened the Hearing by stating that creation of the OII would provide an effective way to help Congress and the federal government make more informed decisions regarding national and international insurance policy. To view a copy of Representative Kanjorski’s opening remarks, click here.

Written statements also are available from Representatives Ginny Brown-Waite (R-FL), and Ruben Hinojosa (D-TX)

Before the panel discussion was opened, Subcommittee members stated their individual positions regarding the creation of an OII.

Representatives Kanjorski, Pryce, Royce, and Tom Feeney (R-FL) support HR 5840 with no reservations. Their reasons for support include:

• Creation of the OII would provide Congress and the federal government with an expert, impartial opinion on domestic and international insurance policy issues
• The OII would give the federal government a much-needed voice in insurance matters
• The OII would unify the disparate policies of the 54 states and territories
• Since Europe is moving toward a single national market if Solvency II is adopted, this bill would make the U.S. more competitive
• The bill would increase competitiveness of the U.S. reinsurance market and allow domestic and foreign companies to do more business
• The OII would move the insurance industry closer to an Optional Federal Charter
• The OII and the Optional Federal Charter, if adopted, would provide protection for consumers
• Consumers “suffer” under the current state-based system, incurring an additional $37 billion in premium costs each year.
• With 99 legislative bodies and 54 regulators that have a say in insurance matters, there is increased difficulty with arbitrary state rules that cost the public more in premium dollars.

Representatives Brad Sherman (D-CA) and Brown-Waite support HR 5840 with reservations, citing the following as reasons:

• The bill might place international policy power in the hands of corporate concerns instead of the people
• Leeriness of any federal office that would supersede state laws

Representative Donald Manzullo (R-IL) does not support the bill for the following reasons:

• He sees no evidence that the insurance industry needs an OII to “rescue it”
• Foreign companies already work with the U.S.
• It would be unwise to allow the wishes of foreign governments to pre-empt state laws

Representatives David Scott (D-GA) and Geoff Davis (R-KY) expressed indecision regarding HR 5840, inasmuch as they support HR 5611, an alternative bill, which is also known as the “National Association of Registered Agents and Brokers Reform Act of 2008.” They stated:

• Regulatory reform should take more time, discussion and compromise, so as to not deter competition or decrease efficiency of the current system
• HR 5611 would set up a National Association of Registered Agent Broker and Licensing (“NARAB”), which would increase competition in the market

NARAB would:

• Serve as a portal for Agents/Brokers across the U.S. to obtain licenses allowing them to operate in multiple states
• Operate under voluntary membership and include criminal background check information
• Not be part of any federal agency and hold no federal power
• Maintain the state-based system and help small businesses looking for insurance

Panel One speakers included (click on the panelist’s name to view his or her written testimony):

• Mr. Jeremiah O. Norton, Deputy Assistant Secretary, U.S. Department of the Treasury (“Treasury”)
• The Honorable Michael T. McRaith, Commissioner, Illinois Division of Insurance, on behalf of the National Association of Insurance Commissioners (“NAIC”)
• The Honorable Brian P. Kennedy, Rhode Island House of Representatives; President, National Conference of Insurance Legislators (“NCOIL”)

Mr. Norton spoke in favor of insurance reform, citing the March 31 Treasury Report, entitled “Blueprint for Stronger Regulatory Structure.” To view the report, click here.

Mr. Norton and the Treasury advocate passage of HR 5840, inasmuch as it incorporates many suggestions made in the Blueprint Report. Creation of the OII, as well as creation of the Optional Federal Charter, would give the U.S. a much-needed singular voice in the global insurance market. It is the Treasury’s position that the OII would not supplant Executive Branch entities, but would work closely with them.

Mr. McRaith spoke in favor of HR 5840 as well, saying that although the U.S. has the world’s largest and most competitive insurance industry, insurance regulation must modernize itself. He stated that the NAIC pledges to continue to work with the federal government and its state regulators, and looks forward to working with a federal point of contact on international issues.

On behalf of NCOIL, Mr. Kennedy voiced concerns about HR 5840. Although NCOIL takes no official stance on the bill, it cannot ignore the bill’s lack of parameters for state involvement. Mr. Kennedy continued that the states have built the current, strong U.S. insurance industry, and that other federally-run agencies have failed. NCOIL has concern that states would not have the power to fight pre-emption of their laws.

Mr. Kennedy also expressed reservations against use of the NAIC as its information-gathering source, saying that it is unprecedented that the federal government would give up so much power to a private trade group.

NCOIL questions the scope of authority of the OII, and maintains that it should be an informationclearinghouse only, rather than hold any authority. Mr. Kennedy also questioned the definition of “international insurance matters,” saying that the term could be interpreted too broadly.

Creation of the OII would also provide a federal framework for federal insurance regulation, which NCOIL is also against.

Panel Two speakers included (click on the panelist’s name to view his or her written testimony):

• Mr. Neal S. Wolin, President and Chief Operating Officer, Property and Casualty Operations, The Hartford Financial Services Group, on behalf of the American Insurance Association
• Mr. Stephen E. Rahn, Vice President and Associate General Counsel, Lincoln Financial Group on behalf of the American Council of Life Insurers (“ACLI”)
• Ms. Tracey Laws, Senior Vice President and General Counsel, Reinsurance Association of America (“RAA”)
• Dr. David A. Sampson, President and Chief Executive Officer, Property Casualty Insurers Association of America (“PCIAA”)

Mr. Wolin spoke in favor of HR 5840, saying that the OII is needed to give the federal government an impartial, accredited voice in the international and domestic insurance industries.

Mr. Rahn spoke in favor of HR 5840, saying that under the current system, Congress has no effective means to obtain industry information, and that there is no source for advice on a national industry-wide scale.

The ACLI believes pre-emption is appropriate, but that pre-emption language must be crafted carefully in order to avoid unintended consequences. The ACLI has outlined the following five concerns to provide guidance in this matter:

• A limit should be placed on pre-emption to relegate it to international issues where federal policy is reflected in an agreement between the OII and a foreign jurisdiction or authority only.
• It supports the intent to not create any supervisory or regulatory authority on behalf of the OII over any U.S. insurer.
• It does not advocate pre-emption used in a way that leads to a real or potential “solvency gap.”
• It is concerned with pre-emption leading to unfair discrimination against any U.S. insurer.
• It agrees with the draft bill’s discussion requirement that the OII consult with the Advisory Group before entering into any international agreements with foreign jurisdictions or authorities, or before making any determination that a state measure is inconsistent with such agreement and therefore pre-empted.

Regarding the circulated Amendment to HR 5840, the ACLI is concerned about the collection of data that is not publically available, and objects to the role played by the NAIC and Federal Trade Commission in regard to data collection.

On behalf of the RAA, Ms. Laws spoke in favor of the bill, saying that because of the European Union’s proposed Solvency II, the U.S. needs a single voice in the world market. If Solvency II is adopted, under the current state-run system, U.S. companies will not be able to achieve parity in the world market.

The RAA has concern, however, about the scope and process of the proposed OII’s pre-emption rights. It advocates that the scope must remain consistent in pre-emption of any domestic or foreign laws that would conflict with federal policies. The RAA also has concern about states’ rights to stay pre-emptions. Ms. Laws stated that in the system as its laid out, states get too many opportunities to stay a pre-emption.

While Mr. Sampson and the PCIAA take no official stance on the bill, they do have a few concerns about the scope of the bill, data collection costs, the NAIC would be the only information provider, and the pre-emption of states’ laws. Mr. Sampson explained that PCIAA member companies are concerned that the bill does not provide for a comprehensive legislative body.

Following questions from Subcommittee members, the Hearing was adjourned.

 

Below are links to various news articles that were published following the Hearing (click on a headline to view the complete story):

EU Plan to Shake up Insurance Industry

The European Commission has proposed shaking up how the European Union’s insurance sector covers risk.

Solvency II aims to protect policyholders better and spur competition in the 27-nation European Union while making more efficient use of capital in the industry.

U.S. Office Of Insurance Info Gets State Regulator Support

Legislation that would establish a federal Office of Insurance Information has won the qualified support of state insurance regulators but remains a concern for state lawmakers.

NAIC Offers Conditional Support For Establishing Office Of Insurance Information

On behalf of the National Association of Insurance Commissioners (NAIC), Illinois Insurance Director Michael T. McRaith testified today before the U.S. House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises about H.R. 5840, the Insurance Information Act of 2008.

Witnesses Mull Insurance Office Bill

State insurance regulators today said that they could accept a bill that would establish a federal Office of Insurance Information, while state lawmakers talked about the role state regulators would play at the OII.

OP-ED: Senator Tim Johnson (D-SD)

Reform necessary for America to be competitive in the insurance market

Today, the financial services sector is facing many challenges. Confidence, transparency, capital availability and liquidity are chief among marketplace concerns. Congress, the financial institutions and their regulators are struggling to maintain confidence in the economy and in their ability to mitigate the harm of the subprime mortgage meltdown. As a result, there have been increasing calls to reexamine the regulatory structure governing financial services.

 

Should you have any questions or comments, please do not hesitate to contact Colodny, Fass, Talenfeld, Karlinksy & Abate.

 

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