Washington - Congressman Ed Royce (R-CA), a senior member of the House Financial Services Committee, introduced legislation that would create an optional federal charter regulatory regime for life and property/casualty insurance providers. The National Insurance Act of 2006, is companion legislation to S.2509, which was authored by Senators John Sununu (R-NH) and Tim Johnson (D-SD)."The National Insurance Act would create a federal regulatory agency within the Treasury Department; however, it would leave the current state regulatory system in place. An insurance provider could choose to be regulated by the 50 states or by the Office of National Insurance," says Royce. "This concept is not new--the banking system has lived under such a framework for much of our nation's history."
The U.S. Treasury, academic experts and market participants recently testified that the state-based system of regulation needs modernization. Uniformity of regulation, which is lacking at state level, would be achieved with federal oversight. One set of rules would enable insurance providers to reduce compliance costs and reduce barriers to market entry.
Some associations are commending Royce and this legislation. "At a time when the life insurance industry is taking on a more significant role in helping to provide for the retirement security of a growing segment of the American population, an inefficient regulatory system is no longer acceptable," says Frank Keating, CEO of Washington-based American Council of Life Insurers (ACLI).
The Independent Insurance Agents & Brokers of America (IIABA) agrees that the existing regulatory system needs greater uniformity and efficiency, but "a one-size-fits-all scheme that creates a new federal bureaucracy is not the answer," says Thomas Minkler, chairman of the IIABA national Government Affairs Committee.
IIABA believes a federal regulator and a new federal bureaucracy would create many new problems and conflicts that do not exist under the current regulatory structure, such addressing property-casualty issues, which are localized in nature--hurricanes, earthquakes, mudslides, tornadoes, etc. Bureaucrats in Washington will not address these issues with more expertise and efficiency than local officials, according to the IIABA.
The IIABA also believes establishing a dual state/federal system would be very confusing to consumers who may have some insurance products regulated at the state level and others at the federal level.
But others disagree. "The significant costs of complying with the more-than-50 jurisdictions has led to higher costs and less participation in the insurance sector. This legislation would lead to more transparency and competition," says Royce. "Consumers would be the direct beneficiary of the increased competition through lower premiums and more innovative products. Competition has been a mainstay of the American tradition. Congress should ensure that insurance consumers receive this benefit."
GIVING CONSUMERS POWER
Gov. Marc Racicot, American Insurance Association president, also stands behind the legislation. "Under the Royce legislation, consumers would be trusted and empowered to make informed choices about what they want and need from insurers," he says. "The streamlined, rational regulatory system called for in this legislation will result in increased efficiency, and product innovation that would lead to more choices and enhanced convenience for consumers. Such a system would be a great improvement over the present, patchwork state-by-state regulatory system, which has not kept pace with 21st century marketplace needs."
ACLI's Keating agrees. "Under the current regulatory structure, insurance products can languish for up to two years before being granted approval in every jurisdiction," he says. "An optional federal charter would accelerate the time it takes to roll out new products nationally, thus making products available to consumers in a timelier manner to address their financial needs."
National Insurance Act as introduced in the House is nearly identical to S.2509 (Sununu-Johnson); however, Royce's bill also includes a provision to create a Prompt Corrective Action (PCA) provision. Congress instituted PCA for the banking system in 1991 to enhance the safety and soundness of the banking industry.
"In addition to the strong in the Senate bill, I believe that PCA could further strengthen the safety and soundness of the insurance sector," says Royce.
Keating foresees other industry benefits with this legislation. "Iinternational outreach would benefit from an OFC. Because insurers lack a federal regulator, the industry is not adequately represented in trade negotiations, limiting our access to foreign markets. An OFC would help give our industry a voice at the negotiating table," he says.
As far as industry benefits go, the IIABA is supporting H.R. 5637, the Nonadmitted and Reinsurance Reform Act, created to help establish uniformity in the surplus lines and reinsurance markets without undermining the current regulatory system.
"We believe that targeted reform will address the existing problems without depriving consumers of the strengths offered by state regulators--knowledge of local marketplace conditions and responsiveness to consumer concerns," says Charles Symington Jr., IIABA senior vice president for government affairs and federal relations.
Sources: American Insurance Association, American Council of Life Insurers, Independent Insurance Agents & Brokers of America, Rep. Ed Royce (R-Calif.)
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