More Details On Federal Insurance Office Legislation

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WASHINGTON, D.C. — Any legislation creating a
Federal Insurance Office will include a strong role for the Treasury
Department in negotiating international insurance agreements, the
leadership of the House Financial Services Committee made clear today.

It came as the leaders of the committee
announced that the panel will delay action on the legislation in order
to consult with the Trade Subcommittee of the House Ways and Means
Committee, which apparently seeks to exercise jurisdiction over the

Statements to that effect by Rep. Barney
Frank, (D-MA), chairman of the committee, and Rep. Paul Kanjorski,
(D-PA), chairman of its Capital Markets Subcommittee, were made against
the background of strong lobbying by state interests, including the
National Association of Insurance Commissioners and the National
Conference of Insurance Legislators, to limit the authority of the new
agency to preempt state insurance regulators.

Specifically, the provision objected to by supporters of strong state regulation, like the NAIC, allows the Treasury Department to enter into “international agreements on prudential measures.”

But, Rep. Frank said, action on the legislation will take place in a “very short period of time.”

He made his comments as the committee began
marking up several pieces of legislation dealing with reform of the
financial services industry.

He said the committee has many issues
related to financial regulatory reform on its agenda that have
overlapping jurisdictions—specifically citing derivatives with the
Agriculture Committee and the Judiciary Committee on resolution

And, he added that he had not had “appropriate
conversations with members of the House Ways and Means Committee about
the international preemption provisions,” and that this was mentioned
to him by Rep. Sander Levin, D-Mich., chairman of the Ways and Means
panel’s Trade Subcommittee.

He said he is delaying draft work on the bill “to allow the appropriate conversations to take place.”

But, he added that in the context of his
conversations with Ways and Means, it was very much his intention to
adopt legislation that will give the FIO the power to effectuate
international agreements.

Rep. Kanjorski made similar comments. He is the chief sponsor of H.R. 2609, the Federal Insurance Office Act of 2009.

He said a portion of the bill concerning
information gathering by the new agency is only part of what the bill
seeks to accomplish, and the Obama administration is looking for the
capacity to have equal authority when negotiating international
agreements. There is presently no federal insurance regulator at the
negotiating table.

“American interests are at a disadvantage under the
current system with only a state commissioner at the table; there is an
inequality in negotiating,” Rep. Kanjorski said.

He added that to have an effective federal
representative at the negotiating table, preemption of the states would
be necessary, that this is a significant change, and that “we are
moving in that direction.”

The scope of the preemption authority concerns state interests.

In a letter to all members of the House Friday,
Therese Vaughn, chief executive officer of the National Association of
Insurance Commissioners, said the latest draft of the legislation
constitutes “a significant shift of authority from the states to the federal government,” and should be removed.

NCOIL, in a letter released today, said, “We
continue to disagree with the necessity for such an office and question
its accountability
and effectiveness.”

It said further that “state regulation is successfully guiding insurers through the current economic downturn.”

Moreover, NCOIL officials said, “The office’s
enhanced preemptive power and lack of answerability are alarming to
state officials who have seen the success of checks and balances in the
state system.”

It adds that the proposed legislation “permits an
FIO—to be led by an unconfirmed appointee of the secretary—to override
existing law without meaningful dialogue with the states.”

“In fact, as currently drafted, the FIO only must consult the states prior to requesting insurance data from the private sector and after a determination that a state law will be preempted.

“Other consultation with state officials is limited to the extent the director [of the FIO office] determines appropriate.”

The National Association of Professional Insurance
Agents also voiced support for the state regulators, noting that if the
FIO bill is passed as written the Financial Services Committee is
“poised to take opposite positions on the same issue in the space of
one week.”

Specifically, he said, the committee approved an
amendment to legislation creating a Consumer Financial Protection
Agency that would make national banks and federally chartered savings
associations subject to a broad range of state consumer protection and
financial services laws, while exempting insurers.

"The Financial Services Committee made the right
decision last week when it placed restrictions on the OCC’s rampant and
unaccountable preemptions of state laws," said Leonard Brevik,
executive vice president and chief executive officer of the PIA.

He said the committee can achieve consistency with
its previous position by including the same preemption standards in
H.R. 2609.

"We are hopeful that the members of the Financial
Services Committee will continue to move forward by extending the same
kind of restrictions it correctly placed on preemptions of state law
under the regulatory reform bill to H.R. 2609," Mr. Brevik said.

Consumer Watchdog, a California-based consumer advocate group, made the same point.

"We are at a loss to understand why you have
proposed a measure to deregulate the insurance industry by preempting
state laws as part of the financial re-regulation package," Consumer
Watchdog officials said.

"Each version of the bill would restrict the
ability of state lawmakers and regulators to protect insurance
consumers by granting the Treasury Department and a new Federal
Insurance Office the authority to preempt state laws and regulations on
prudential matters on behalf of foreign insurance firms.

"This proposal is even more perplexing in light of
the strong fight, on the part of both the administration and majority
members of the Financial Services Committee, to preserve states’
ability to protect their citizens during the debate over the Consumer
Financial Protection Agency," the letter continued.

Consumer Watchdog
Consumer Watchdog
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