Compromise legislation establishing a federal role in insurance regulation is likely to emerge from the House Financial Services Committee early in May. A hearing in late March yielded strong support for the measure from an industry divided on the issue.At the same time, the principles involved constitute the strongest support yet for greater uniformity in insurance regulation.
The current consensus among experts is that the bill will get through the House. And, there are indications that Sen. Richard Shelby, R-Ala., chairman of the Senate Banking Committee, may be willing to take up the issue.
However, if the bill makes it through the House, it will likely allow for greater deregulation of commercial lines than for personal lines.
Members of Congress are apparently very sensitive about allowing the marketplace to determine the price of auto and homeowners insurance, anticipating that such deregulation will come back to haunt them.
Potential barriers
The bill could get sidelined for a number of reasons. One is: the primary life insurance trade group, the American Council of Life Insurers, was conspicuously absent from recent hearings.
The association is advocating an optional federal charter this year-a piece of legislation that by Rep. Mike Oxley, R-Ohio, and other leaders on the committee believe constitutes a revolutionary rather than evolutionary approach, which they cannot sell to a closely divided Congress.
Also, few details of the so-called "road map" articulated by Oxley, chairman of the panel, have emerged.
And, with the involvement of a large number of constituent insurance groups that have a stake in the legislation, writing a bill that will maintain the consensus could be difficult.
Congress has to wrestle with the fact that insurers pay an estimated $12 billion annually in taxes, most of it hidden in franchise and income taxes paid by subsidiaries of insurance companies, which the states control. Also, state regulation employs approximately 11,000 people nationwide, with an annual payroll and other costs estimated at $1 billion. States are very reluctant to surrender this power and money.
Equally important, state regulation is a source of power for agents. The current system retains the agent's grip on distribution systems, despite the Internet and call centers that service customers.
At the hearing, South Carolina Commissioner Ernst Csiszar representing the Kansas City, Mo.-based National Association of Insurance Commissioners (NAIC), spoke highly of Congressional efforts, saying the congressional "spotlight" has instilled a sense of urgency in the state commissioners and lawmakers.
While acknowledging state officials have some problems regulating insurance at the state level, Csiszar also said they are willing to provide their expertise to help guide congressional reforms-and Congress should take advantage of that opportunity.
"We know reform is needed," he said. "We are very eager to be at the table with you fleshing out the details."
Stern warning
Csiszar gave the subcommittee a stern warning against the optional federal charter idea, calling it "the worst of all possible worlds."
For their part, representatives for insurance and agents groups voiced a general approval for the plan, as a step toward a solution if not an actual end.
Speaking on behalf of the American Insurance Association, Roger M. Singer, general counsel for Boston-based OneBeacon Insurance Group, acknowledged the lack of political momentum toward obtaining the optional federal charter, noting "we must be pragmatic about the pace of reform in the short term."
However, others representing the industry argued that the goal should be the reforms themselves rather than the creation of another level of regulation.
Speaking for the Property Casualty Insurers Association of America, NJM Insurance Group president Anthony Dickson said, "the greatest chance to achieve this goal, both politically and functionally, is a narrowly targeted package designed to address the core problems of the current regulatory system-namely antiquated price controls that impose barriers to market-based pricing systems."
Arthur D. Postal is Washington, D.C.-based bureau chief for Insurance Chronicle, a Thomson Media publication. Matt Brady of the Insurance Chronicle contributed.
