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NAMIC Statement to the NAIC Industry Liaison Committee on the Oxley Baker "State Modernization and Regulatory Transparency Act" (SMART Act) Discussion Draft

ANCHORAGE, ALASKA (Sept. 11, 2004)--The substantive reforms outlined in the recently released discussion draft of the State Modernization And Regulatory Transparency Act (S.M.A.R.T. Act) correspond with NAMIC's long-held belief that state insurance regulation can best be accomplished in the state capitols. The states are best equipped to protect consumers, create uniformity, ensure competitive markets and encourage more choices for the insurance-buying public.

With the S.M.A.R.T. proposal, Congressman Michael Oxley, chair of the House Committee on Financial Services and Congressman Richard, Baker, chair of the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, have recognized and addressed the key barriers to reform that have kept the insurance industry mired in an outdated command and control style regulatory regime.

It is our belief that the primary barrier to true reform is price regulation. Insurance is an inherently competitive business. It does not require a heavy-handed regulatory presence to keep prices affordable. Illinois, with its open competition model and more recently, Louisiana, New Jersey, Oklahoma, Rhode Island and South Carolina, with laws that encourage either flex-band rating or less approval oversight, have proven this point.

Our critics have also unintentionally done so as well. In one venue, they express the fear that insurers will charge too much for insurance without regulatory control. In the next these same critics indict the industry for not charging enough in the late 1990's due to competitive pressures. Time has shown that regulators, despite their best efforts and good intentions, have not found the proper regulatory balance that simply can be achieved by a more competitive market. Illinois' three decades of success in providing its residents with competitive prices has proven this point far more eloquently than I am capable of doing here today.

We also applaud the S.M.A.R.T. Act's call for more coordinated, "for cause" market conduct examinations. When states duplicate each other's examination efforts, they dilute their potential effectiveness and needlessly drive up compliance costs. The S.M.A.R.T. Act recognizes the contributions of the NAIC in this area by calling on the states to adopt the NAIC Market Surveillance Model Act, the NAIC Market Analysis Handbook and the NAIC Uniform Examination Procedures, as well as future model acts on market conduct.

Further, it is critical that a system of cause-based exams be implemented so regulator resources can be focused on companies whose behavior is troublesome, rather than on companies whose "time in the barrel has come."

NAMIC continues to firmly support state regulation of insurance. Since property/casualty insurance addresses issues that can vary significantly from one state to another, maintaining and improving the system's state-based foundation is the correct public policy response for this portion of the industry. If enacted in its present form, the S.M.A.R.T. Act would do that but it must be viewed realistically; it will not be the final word on insurance regulation from Washington.

As NAMIC noted in its 2003 paper on insurance modernization, Regulation of Property/Casualty Insurance: The Road to Reform, despite the best of intentions, federal programs and regulation have a tendency to expand. Pursuit of any federal solution to the problems of state regulation will inevitably invite additional mandates that could serve to undermine the principles of risk sharing on which this industry is based.

Congressmen Oxley and Baker have done this industry and the NAIC a tremendous service by outlining a path for reform for state insurance regulation. NAMIC generally agrees with the identified reforms and strongly suggests that the individual members of the NAIC focus their time on helping their respective state legislators understand the complex issues involved and to persuade them to enact reforms in the areas identified by the S.M.A.R.T. Act. You will find willing supporters among the more than 1,350 NAMIC member companies that collectively compose 41 percent ($170 billion) of the property/casualty premium written in this country.

Finally, NAMIC supports creation of the collaboration between the NAIC, the National Conference of Insurance Legislators, the National Conference of State Legislators to study and enact state reforms.

Now is the time to show the effectiveness of that coalition. If it is not demonstrated, it is certain the "next" federal proposal coming out of Washington, D.C. will not go to the lengths that Congressmen Oxley and Baker have gone to preserve the present state framework.

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For further information contact:
Robert Detlefsen at rdetlefsen@namic.org
or (317) 875-5250