Business Insurance

WASHINGTON — Support may be growing for some sort of federal role in insurance regulation, if the testimony of witnesses at a Senate Commerce Committee hearing last week is any indication.

Exactly what that role should be, though, remains an issue of some debate, with proposals ranging from using federal legislation to prod reluctant state governments to enact reforms to allowing multistate insurers to choose federal rather than state charters.

Not surprisingly, a witness representing the National Assn. of Insurance Commissioners held that a federal insurance regulatory role is not only unnecessary but also could prove counterproductive.

The hearing was called at the behest of the committee’s ranking minority member, Sen. Ernest Hollings, D-S.C. Sen. Hollings has introduced The Insurance Consumer Protection Act, S. 1373, that would subject multistate insurers to regulation from a powerful new federal Insurance Commission. Under the Insurance Consumer Protection Act of 2003 the commission, among other things, would have the power to set rates, issue licenses and investigate market conduct.

This is not the sort of federal regulation, though, that even insurers that favor a federal role would like to see.

”Nationwide reform at the federal level is critical,” said Craig Berrington, senior vp and general counsel of the American Insurance Assn., as the committee considered what role, if any, the federal government should play in insurance regulation. Mr. Berrington said that the AIA would be willing to give up the limited antitrust exemption granted insurers by the McCarran-Ferguson Act in return for insurers being allowed to freely price their products like other businesses.

The McCarran-Ferguson Act gives states primacy in insurance regulation. Mr. Berrington noted that the AIA supports optional federal chartering for insurers that operate in more than one state. He stressed that the AIA believes that there should be no rate regulation, either by the states or within a federal framework.

Mr. Berrington said that even insurers that do not support an optional charter recognize that there are serious problems with the current state-based regulatory system. Other witnesses bolstered that contention.

For example, while stressing his group’s belief that state regulation should be improved rather than superceded, Thomas Ahart, past president of the Independent Insurance Agents & Brokers of America Inc., said that Congress should use its powers to get states to adopt a more-uniform system of producer licensing and enact other reforms, such as overriding state regulations that govern file and use laws. Rates should be based on market competition, said Mr. Ahart, who is president of Ahart, Frinzi & Smith in Phillipsburg, N.J.

”I have, in my entire life, supported state regulation,” said J. Robert Hunter, director of insurance of the Consumer Federation of America. But the longtime industry critic and former Texas insurance regulator said that he now thinks ”state regulation is failing” to protect consumers adequately.

”I’m at the Rubicon,” he said, adding that he would not support a dual system of state and federal regulation. ”We cannot abide a race to the bottom,” which he said would occur if insurers were permitted to choose between state and federal regulation.

Mr. Hunter’s contention was not shared by Ernst Csiszar, director of the South Carolina Department of Insurance and vice chairman of the NAIC’s executive committee. ”By and large, the state system has worked,” Mr. Csiszar said, acknowledging that there had been ”some hiccups” along the way. Creating a dual system of regulation ”isn’t the ideal world for consumers,” he said.

Stephen Rahn, vp and associate general counsel of Lincoln National Life Insurance Co. of Fort Wayne, Ind., also testified before the committee on behalf of the American Council of Life Insurers. Douglas Heller, senior consumer advocate at the Santa Monica, Calif.-based Foundation for Taxpayer & Consumer Rights, also spoke.