April 3, 2009
On April 2, Reps. Melissa Bean, D-Ill., and Ed Royce, R-Calif., introduced H.R. 1880, the National Insurance Consumer Protection Act. The legislation would create a dual regulatory environment for property/casualty insurers by creating federal regulation for all insurers.
The legislation makes a number of changes from prior optional federal charter proposals, but retains features establishing a federal insurance regulatory body. The bill would create an Office of National Insurance located within the Department of the Treasury. The ONI would have the authority to organize, incorporate, operate, regulate, and supervise national insurers, national insurance agents, and national insurance producers.
The legislation is billed by supporters as optional; however, if an insurer is determined to be systemically significant, the insurer could be required to be federally chartered. Similarly, while a state-chartered insurer could elect to become federally chartered, a federally chartered insurer would have to obtain the approval of the ONI to revert to a state charter. The impact of these requirements makes the option of federal regulation an illusion.
The newly created office and its related programs would be funded by assessment fees placed upon the participating insurers, agencies, and producers. The cost of setting up this new federal agency and its related programs will be astronomical, raising the questions: what if the number of institutions electing to be federally chartered is insufficient to support the federal bureaucracy; and, what if the cost of the regulation provides a competitive disadvantage for national insurers.
Federal charters would be available for property/casualty insurance, life insurance, or the reinsurance of property/casualty insurance and life insurance. Insurance holding companies would be permitted to hold both property/casualty and life insurers. The ONI would define national standards for company activities such as accounting, risk management, internal controls, investments, and reinsurance.
A division of consumer affairs with an office in each of the 50 states and a centralized call center would respond to consumer questions and complaints related to national insurers and producers. National insurers would also be required to appoint a consumer liaison to address consumer complaints or disputes. The creation of a duplicative federal insurance consumer protection system would be costly, confusing for consumers, and weaken existing consumer protections.
The legislation also creates a national guaranty fund financed by assessments on federally chartered insurers. In addition to participation in the federal guaranty fund, national insurers would be required to participate in state guaranty funds for every state in which they do business. This dueling set of national and state guaranty funds will weaken both systems. Interaction and coordination of the duplicative guaranty systems would confuse and delay settlements. The state guaranty fund system is a highly effective mechanism through which the industry polices and supports itself – there is no need to diminish the ability to guarantee consumer policies.
The legislation would apply federal antitrust laws – the Sherman Act, the Clayton Act, the Federal Trade Commission Act, and the Robinson-Patman Anti-Discrimination Act – to national insurers and producers. The application of the antitrust laws would subject insurers to oversight and investigation by the Federal Trade Commission and the Department of Justice. For years, the FTC has been precluded from investigating insurance companies, and the industry has steadfastly opposed efforts to expand the agency’s reach into the industry. Although some proponents of an optional federal charter have indicated a willingness to trade federal antitrust authority for a federal charter, opening the door to FTC regulation of segments of the industry exposes the entire industry to investigation and regulation.
A new feature of the legislation is the new level of national insurance regulation in the form of a systemic risk regulator. The systemic risk regulator, an entity separate from the ONI, would regulate all insurance companies to determine their systemic importance and how to best regulate them. All insurers, regardless of whether they are regulated at the state or federal level, could be required to submit information on their activities and operations to the federal systemic risk regulator, who could then participate in state examinations. In addition, the systemic risk regulator would be authorized to direct a state regulator to enforce corrective actions, or, in severe cases, take direct action to regulate the activities of insurers or require that the company be federally chartered. The systemic risk regulator proposal singles out the insurance industry from other financial services and subjects all insurers to a dual regulatory system.
NAMIC is opposed to this confusing and overreaching legislation. NAMIC continues to urge lawmakers to concentrate efforts related to regulatory reform on fostering a better working relationship between state and federal regulators and international financial regulatory bodies, and assessing systemic risk by focusing on the impact of products or transactions used by financial intermediaries. Likewise, NAMIC supports the creation of an Office of Insurance Information to increase understanding of the insurance industry at the federal level and to engage with foreign jurisdictions on insurance matters.
The legislation was introduced with only the two original sponsors and without the support of the committee leadership. No immediate action is anticipated on the legislation, but NAMIC staff will continue to work with the committee as this issue progresses. Please contact Marliss McManus at (202) 628-1558 for further information.
Posted: Monday, April 06, 2009 12:00:00 AM. Modified: Monday, April 06, 2009 8:31:49 AM.
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