Finance: Consumer, State Groups Oppose Senate Insurance Provisions

Consumer groups and state insurance commissioners are fighting broad powers granted to the Treasury Department in the Senate’s financial regulatory bill to negotiate international insurance agreements they argue could undermine consumer protections.
 
The proposal also would cut Congress out of such international negotiations, drawing flak from Senate Finance Committee staff seeking to preserve lawmakers’ traditional role in approving treaties. The House Ways and Means Committee raised similar concerns with House Financial Services Chairman Barney Frank last year, who agreed to water down Treasury’s authority in the measure approved by that chamber in December.
 
Senate Banking Chairman Christopher Dodd’s bill largely mirrors Treasury’s June proposal in that it would create an industry-backed Office of National Insurance to coordinate federal policy, currently governed by insurance regulators in 50 states.
 
State regulators and consumer groups see no problem with a centralized federal office to collect data and oversee insurance regulations. But critics say the Dodd bill and Treasury go wrong in their proposed authority to enter into international agreements without congressional approval.
 
Such powers could have the effect of actually deregulating the insurance industry if an international pact contained looser restrictions than contained in state laws, which they say is contrary to the intent of the regulatory reform effort.
 
"The broad concern we have as consumer organizations is that somehow, incongruously, a measure that would undermine state insurance commissioners has somehow been incorporated into what is Congress’ re-regulation of the financial sector," said Carmen Balber, Washington director of Consumer Watchdog. "And we think it is completely out of place."
 
The Dodd bill’s Office of National Insurance would be housed within Treasury to advise the secretary on all matters dealing with domestic and international insurance policy, although that would not extend to health and crop insurance.
 
Unlike in the House bill, under the Dodd bill the office could subpoena information from insurers, which is opposed by industry.
 
But the office could also pre-empt state laws if deemed to put foreign insurers at a disadvantage to domestic firms, or if they are inconsistent with international insurance pacts. Certain state regulations, such as those governing rates, premiums or coverage requirements, could not be pre-empted. But on the key question of an insurer’s solvency, the national office could overrule state regulations if they result in less favorable treatment for foreign firms.
 
Balber’s group and others such as Public Citizen and U.S. PIRG argue that the language could grant foreign firms greater U.S. market access, at the same time overriding regulations preventing insolvent insurers from closing up shop and heading offshore, leaving consumers on the hook. Sen. Jeff Merkley, D-Ore., has raised concerns about the insurance language and is considering possible amendments. "I’m looking into it," he said Tuesday.
 
Talking points distributed to senators by Public Citizen also note that the terminology in the Dodd bill — "international agreements on prudential measures" — could also apply to insurance provisions in existing trade pacts, not just new insurance agreements. Changes to the House bill negotiated by Ways and Means, backed by consumer groups and state
regulators, limited the scope to "mutual recognition" agreements where federal agencies have identified nations whose own laws mirror the goals of U.S. insurance regulations.
 
Also, the Dodd bill gives Treasury express authority to negotiate insurance agreements, while the House bill grants joint authority to Treasury and the Office of the U.S. Trade Representative, although USTR would be consulted in Dodd’s bill.
 
And perhaps most importantly for lawmakers, the House bill requires Treasury and USTR to consult with the banking and trade committees in both chambers and then present them with the text of an insurance agreement. It also allows 90 days for the panels to review such an agreement, and if necessary, make changes to it. The Senate bill contains no congressional review process.
 
Domestic insurers largely back the Dodd language, aside from its subpoena power. Foreign insurers and reinsurers, which provide an added backstop to limit losses from disasters, also back a strong federal role in insurance regulations and authority to negotiate international pacts.
 
"[W]e urge Congress to continue to pursue establishment of a fully empowered U.S. federal functional regulator of insurance that will have among its powers the authority to enter into international agreements and to enforce them," states a letter to Frank last fall from Henri de Castries, chairman of the Pan-European Insurance Forum. The group represents such firms as Allianz SE, Swiss Re and Zurich Financial Services.
 
Critics such as the National Association of Insurance Commissioners, National Conference of Insurance Legislators and individual state commissioners are not standing still. NAIC President Jane Cline of West Virginia and other state representatives wrote to senators Tuesday urging them to replace the Dodd provision with the House language.
 
Earlier this month, Maine’s insurance superintendent and the state’s attorney general wrote to Senate Majority Leader Reid as well as Maine Republican Sens. Olympia Snowe and Susan Collins — who Treasury Secretary Geithner has been courting — to register opposition.