Insurer, Producer Groups Remain At Odds On Renewed Push For National Oversight

WASHINGTON D.C. — To say that the insurance industry is not on the same page when it comes to the latest measure in Congress to create a national insurance regulator would be an understatement, as the flood of conflicting official reactions from various company and producer trade associations indicates most aren’t even reading the same book.

Opinions are strong on both sides of the debate, with opponents predicting doom and proponents hailing the potential benefits.

The latest spark in this fiery debate came courtesy of the announcement by Rep. Melissa Bean, D-Ill., and Ed Royce, R-Calif., that they would introduce legislation creating an Office of National Insurance.

The pair said they believe their bill "can provide a more effective regulatory regime over insurance that will enhance consumer protections, ensure our capital markets are protected from systemic threats within the insurance sector, and address many of the problems that have resulted from the fragmented state-based system."

The proposed National Insurance Consumer Protection and Regulatory Modernization Act would establish a nationwide system of regulation and supervision for insurers, agents and brokers who choose federal oversight. States would maintain responsibility for regulating state-licensed insurance operators.

However, the bill could lead to a bifurcated system of insurance oversight, one critic charged.

"Creating an optional federal charter for insurance would lead to dual regulation for the property-casualty insurance industry," said Jimi Grande, vice president, federal and political Affairs for the National Association of Mutual Insurance Companies.  "It appears the direction Rep. Royce and Rep. Bean are heading in will still create an unlevel playing field," he added.

David Sampson, president and chief executive officer of the Property Casualty Insurers Association of America, said the proposal would "muddy" the need for prompt action on legislation creating a federal systemic risk regulator.  He said OFC legislation "raises important issues but fails to address the critical regulatory vulnerabilities that caused the current global financial crisis."

"The critical need right now, which is crucial to the future of our economy, is to establish a viable system for systemic risk regulation before refocusing on a decades-old debate over federal insurance regulation," he added.

But Blain Rethmeier, senior vice president of public affairs at the American Insurance Association — which backs an optional federal charter — said that "we view the news of Rep. Bean and Rep. Royce undertaking a new bill aimed at enhancing consumer protections and modernizing the way insurance is regulated as a very positive development."

He added this is "especially so when their efforts are coupled with [Treasury] Secretary [Tim] Geithner’s comments that insurance is a critical part of the broad regulatory reforms needed and that a federal functional regulator for insurance has merit."

The reaction among insurance producer groups is also split.

Charles Symington, senior vice president of government affairs at the Independent Insurance Agents and Brokers of America, said that "based on what we have seen and heard so far, the Bean-Royce legislation is the same old, tired
idea for optional federal insurance regulation that has garnered little support in past Congresses."

He added that an OFC is "bad for consumers and the insurance market, particularly in this time of economic uncertainty, and a little bit of window dressing is not going to change that fact." He vowed that "IIABA and our 300,000 agents nationwide will continue our strong opposition to this ill-conceived bill."

The National Association of Professional Insurance Agents charged that the measure is a call for greater deregulation, not reform, and threatens "to dismantle the successful state insurance regulatory system."

PIA President Kenneth Auerbach said the bill merely adds "perfume and lipstick" to a "tired, old proposal that its backers have tried and failed to advance for many years.  It is still a bad idea."

"Congress and the administration cannot afford to take their collective eyes off the ball with a bill like this," Mr. Auerbach said, adding that the focus "must remain on correcting the failures in the federal regulatory system that led to our current financial crisis.  Deregulating insurance does not accomplish this task."

But a representative of Agents for Change — which includes both property-casualty and life insurance agents who support optional federal charters — lauded the bill, saying it is forcing opponents of federal regulation to "scramble."

Peter Ludgin, executive director of Agents for Change, said opponents of federal regulation are using "their same old, tired talking points, developed years ago," and "are not adding anything constructive to a real policy debate in light of the current crisis." He added that "interest groups who think the insurance regulatory system should not be reformed to reflect the needs of 21st century consumers are missing the mark."

Mr. Ludgin also predicted that "insurance regulation reform will happen," regardless of current opposition.  "This train is pulling out of the station."

The National Conference of Insurance Legislators, in a letter to Treasury Secretary Geithner, said creation of an OFC would jeopardize jobs and some $ 16 billion nationwide from fees, assessments and premium taxes that "vibrant insurance markets" generate for their states.

NCOIL leaders said they were "taken aback" by Mr. Geithner’s "pro-OFC comments" in his first public appearance as Treasury secretary at a recent Senate Banking Committee hearing.  However, they added, "we are optimistic that
as you review OFC proposals, you will recognize that allowing insurers to hand-pick their regulator is not in the best interest of all."

NCOIL stressed the "folly" of an OFC, saying it would "irreparably damage insurance oversight by promoting regulatory arbitrage and substantially weakening consumer protections." NCOIL said "more would be lost than would be gained by pursuing the OFC concept," arguing that it would "bifurcate insurance regulation and result in confusing and overlapping federal and state directives."

Chiming in with its own letter to Mr. Geithner was Santa Monica, Calif.-based Consumer Watchdog, which wrote that "while the need for a financial regulatory overhaul is clear, it should not be used as a stalking horse for insurance deregulation."

Consumer Watchdog — formed by Prop. 103 organizer Harvey Rosenfield, and formerly known as the Foundation for Taxpayer and Consumer Rights — said the aim of those who seek federal oversight is to avoid stringent state regulations.

"Supporters of this plan are not seeking greater federal regulation," Consumer Watchdog wrote.  "To the contrary, their purpose is to allow insurers to escape oversight.  Proponents have made no secret of the fact that they consider an insurance office at Treasury to be a vehicle for limiting the role of the states in the insurance marketplace."

The group said regulatory authority should not be a choice for insurers to make, as would be the case under an OFC.

Consumer Watchdog also challenged the assertions of OFC proponents that financial trouble at American International Group demonstrates the need for federal regulation.

"Reps. Bean and Royce cite the failure of AIG, ‘once the largest U.S. insurance company,’ as proof of the need for federal insurance oversight," the group said.  "In fact, the company’s insurance units remained generally healthy in a reeling economy because of strong state regulation, even as its federally overseen holding company nearly destroyed the conglomerate."

However, Consumer Watchdog said it would not oppose data collection by the federal government to build expertise on the national insurance market.

The president of the American Council of Life Insurance blasted Consumer Watchdog’s position in a letter of its own to Treasury.  ACLI President and CEO Frank Keating said the federal government must develop an insurance regulatory presence with the capacity to monitor the market and identify risks to consumers, the industry and the broader financial system before they reach the "crisis stage."

"Life insurance is a $ 5 trillion industry which affects the lives of almost all Americans and closely interacts with banks and securities firms," Mr. Keating argued.  "Consumers cannot afford a regulatory structure in which federal financial regulators are effectively walled-off from overseeing the insurance marketplace."

He said establishing a national insurance regulatory option "would close this gap," adding that "an optional system is not a euphemism for ‘no regulation.’"

He denied that insurers with a choice between state and federal regulators would go venue shopping to find the least supervision.  "The rhetoric about ‘regulatory arbitrage’ is overblown," he said.  "An optional system would preserve state regulation for insurance companies that would be better served by it — perhaps smaller or regional companies."

"The key is to maintain high standards of financial solvency and marketplace conduct at both the state and federal levels," he added.