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last updated on June 17, 2009

Federal Insurance Office

Congress has proposed the creation of a federal office to provide expertise and information on the insurance industry to policymakers.

NAMIC BELIEVES that a properly crafted office within the Department of Treasury could play a vital role in the effort to streamline and modernize the state-based insurance regulatory system and provide essential information to Congress and the federal government. However, NAMIC OPPOSES the creation of a federal office that would have regulatory or supervisory authority over the property/casualty insurance industry.

BACKGROUND

The debate on the regulation of the insurance industry has increasingly focused on the creation of an entity within the federal government that would serve as a resource for Congress and the Administration in the designing and implementation of economic policy and trade negotiations.

Office of Insurance Information

Capital Markets Subcommittee Chairman Paul Kanjorski, D-Penn., introduced legislation establishing an Office of Insurance Information, during the 110th Congress. H.R. 5840, the Insurance Information Act, would have created an OII within the Treasury Department with jurisdiction for all lines of insurance except for health insurance to provide advice and counsel regarding domestic and international policy issues.

NAMIC worked closely with Chairman Kanjorski to shape the proposal to ensure that the legislation strictly prohibited the office from any regulatory authority over the business of insurance as well as significantly narrowing the scope of federal preemption. Preemption of state regulatory authority would only occur in the instance where a state treats a foreign insurer in a less favorable way than a domestic insurer.

H.R. 5840 was never debated by the full House of Representatives. However, in the 111th Congress – prior to the collapse of the financial markets – Subcommittee Chairman Kanjorski re-introduced the OII legislation as H.R. 2609.

Specifically, H.R. 2609 would collect and analyze data on insurance; advise the Secretary of the Treasury on major domestic and international policy issues; report to Congress every two years; establish federal policy on international insurance matters; and, ensure that state insurance laws remain consistent with federal policy in coordinating international trade agreements.

Administration-proposed Office of National Insurance

The administration proposed the creation of an Office of National Insurance (ONI) as part of a broader overhaul of the financial services regulatory sector. The ONI would be created within the Department of the Treasury. This new office was a significant departure from Kanjorski’s OII. The ONI would have been tasked with monitoring all aspects of the insurance industry including gathering information, negotiating international agreements, and coordinating policy. Specifically, the office would gather information and identify any problems or gaps in regulation that could contribute to a future crisis. NAMIC expressed significant concerns about the powers that would be granted to this new entity, specifically the authority to issue subpoenas to insurers requiring them to submit data at any time, as well as the ability to pre-empt state law on regulatory matters.

The ONI would also have had the responsibility of recommending to the Federal Reserve any insurance company that the office believes should be supervised as a top-tier financial holding company (Tier 1 FHC), which would be a company who’s “failure could pose a threat to financial stability due to their combination of size, leverage, and interconnectedness.” The ONI would also have assumed all existing responsibilities for the Terrorism Risk Insurance Program.

Although the ONI proposal did not call for the creation of a federal regulator for property/casualty insurers, it did leave open the possibility for Congress to create a federal insurance regulatory structure. The administration suggested that the US could achieve “increased [regulatory] uniformity through either a federal charter or effective action by the states.”

Federal Insurance Office

Prior to a committee hearing in October of 2009, Rep. Kanjorski introduced a new version of his proposed OII legislation and renamed the new entity the Federal Insurance Office (FIO).

As in the 110th Congress, NAMIC worked closely with Rep. Kanjorski’s staff and several positive changes that NAMIC advocated were made. First, it added language clarifying that the legislation does not establish a general supervisory or regulatory authority for the FIO or the Department of the Treasury over the business of insurance. Second, language ensuring that any non-publicly available information obtained would be treated as trade secrets and commercial or financial information obtained from a person would be treated as privileged or confidential and properly excluded from any FOIA requests. Third, the applicability of the Administrative Procedures Act was added, which would limit the preemption authority and provide judicial redress to maintain the integrity of the insurance system and to permit appropriate legal challenges to preemption. And finally, the new draft addressed the pre-emption issues, by providing a strong savings clause protecting state-based insurance regulation, providing for more state insurance regulator consultation, and creating a more reasonable data collection provision without broad subpoena power.

Although the name has been changed to the Federal Insurance Office, the new version strictly limits the office’s ability to preempt state laws, does not grant the office subpoena authority, and explicitly maintains that the office will not have regulatory or supervisory authority.

Ultimately the FIO legislation was included into a larger package, H.R. 4173, the Wall Street Reform and Consumer Protection Act. H.R. 4173 passed the House of Representatives on December 11, 2009, by a vote of 223-202.

Senate-proposed Office of National Insurance

In the Senate, the financial regulatory reform legislation, the Restoring American Financial Stability Act of 2010, was released by Banking Committee Chairman Christopher J. Dodd, D-Conn. Included in the almost 1,400 page package was Title V which addresses the insurance industry. Title V would create an Office of National Insurance within the Department of the Treasury. Similar to the House-version, the discussion draft explicitly states that the ONI will not have regulatory nor supervisory powers over the business of insurance. Additionally, the office will have little authority to preempt state laws dealing with insurance. However, the Dodd draft restores the subpoena and enforcement provision that were removed from the House legislation.

With respect to trade agreements, the discussion draft includes a savings provision that nothing in the legislation shall be construed to affect the development and coordination of U.S. international trade policy or the administration of the U.S. trade agreements program. Additionally, the Treasury secretary would be required to consult with the U.S. Trade Representative prior to initiating or concluding any international insurance agreements on “prudential measures,” or measures concerning financial stability.

Lastly, the Office would be mandated to study insurance regulation and “how to modernize and improve the system of insurance regulation in the United States.” The ONI director must submit a report to congress no later than 18 months after the date of enactment.

The Restoring American Financial Stability Act was voted 13-10 out of the Senate Banking Committee and is awaiting debate by the full Senate.

CONTACT INFORMATION

For more information please contact Marliss McManus, senior federal affairs director, at (202) 628-1558 or mmcmanus@namic.org.

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Every two years, NAMIC presents their coveted Benjamin Franklin Public Policy Award© to lawmakers who have supported a stronger insurance market at least 75 percent of the time. This is demonstrated based on their support of NAMIC's position on certain roll call votes taken, or being a principal player/sponsor on legislation affected the property/casualty insurance industry, during the previous Congress.