NEW! NAIC Testifies on Recent Steps in Modernizing State Insurance Regulation

Testimony of South Carolina Insurance Director Ernst Csiszar

Join the S. 1373 Letter Writing Campaign

Sen. Hollings (D-S.C.) Introduces Bill to Create Federal Regulation of Insurance
On July 8, 2003, Senator Ernest "Fritz" Hollings (D-South Carolina) introduced legislation (S. 1373) that would create federal regulation of insurance. Hollings' bill, S. 1373, The Insurance Consumer Protection Act of 2003, would create in the Commerce Department a five-member Federal Insurance Commission that would establish standards, regulate rates and policies, investigate market conduct and oversee solvency. The existing antitrust exemption under the McCarran-Ferguson Act would be repealed, and the new system would not be optional. Only carriers doing business solely in the state they are domiciled would continue
to be state-regulated. The new Federal Insurance Commission would regulate all lines of insurance.

S. 1373hôtels Innsbruck has been referred to the Senate Committee on Commerce, Science and Transportation

Background

hotels in BlackpoolDuring 2002, there was a sudden surge of renewed interest in creating a new federal charter and regulatory apparatus for insurance companies.  Since enactment of the Gramm-Leach-Bliley Act (GLBA) in 1999, large insurance companies have been arguing that they should have the option of choosing a federal charter, just as banks can do now with the Office of Comptroller of the Currency.

In December 2001, Sen. Charles Schumer (D-NY) released a draft of proposed legislation to create a federal charter and insurance regulatory agency within the Treasury Department. Although this draft legislation was lengthy and very comprehensive in preempting state laws on licensing and marketing issues, it did not address the myriad consumer protection issues that are the heart of state insurance regulation. It is also important to note that the Schumer bill, though widely publicized, was never actually introduced as a bill in the Senate.

Croatia hotelsA separate federal charter proposal was introduced in the House of Representatives in February 2002 by Rep. John LaFalce (D-NY). This legislation, H.R. 3766, bill was similar in most ways to the Schumer proposal with much of the language being drawn from proposals put forth by the banking industry. In both instances, Schumer and LaFalce said their proposals were meant to stimulate debate in Congress over the benefits of a federal insurance charter.

While the Schumer and LaFalce proposals had no prospects for immediate action in Congress, they set the stage for hearings in the House Financial Services Committee, where Rep. LaFalce was the ranking committee Democrat. Chairman Oxley and Rep. Richard Baker (R-LA) announced a series of three hearings in June 2002 to explore the concept of federal insurance regulation and the potential to improve state supervision to offset the need for a federal regulatory agency.

Testifying on June 18 at the last of three hearings regarding state versus federal insurance supervision, NAIC President Terri Vaughan told the House Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises that improving state regulation is the only way to modernize insurance supervision while giving consumers the protections they expect:

The system of state insurance regulation in the United States has worked well for 125 years. State regulators understand that protecting Americas insurance consumers is our first responsibility. We also understand that commercial insurance markets have changed, and that modernization of state insurance standards and procedures is needed to ease regulatory compliance for insurers and agents.

We ask Congress and insurance industry participants to work with us to implement the NAICs modernization initiatives through the state legislative system. That is the only practical way to achieve necessary changes quickly in a manner that preserves state consumer protections expected by the public. The state process may take more effort than having an insurance czar in Washington, but it rewards the citizens and consumers in each state by giving them control over important aspects of insurance and claims procedures that affect their financial security in the communities where they live.

accommodation in Dala-FlodeThe NAICs testimony included updates on state modernization initiatives such as CARFRA, SERFF, producer licensing, and developing an interstate compact to create national uniformity for life insurance products.

Insurance industry witnesses appearing at the subcommittee hearing were split between those who insist that an optional federal charter is critical (primarily banks and large insurers) and those who agree with NAIC that a state-run system avoids duplication, confusion, and unfairness that could result from dual regulatory systems offering different levels of protection to citizens in the same state. Supporters claim the real issue is choice of regulators, and that a federal charter would not affect the existing state system. Opponents of federal regulation stress that a federal charter cannot simply be overlaid upon the state system without preempting essential state laws and regulations (home and auto coverage requirements, litigation rules, workers compensation, etc.) that are the basis of insurance products sold in each state.

Members of the Financial Services Committee participating in the subcommittee hearings voiced varying levels of understanding of the issues and diverse opinions that sometimes conflict. However, there seemed to be general sympathy toward a federal law that enables national uniformity for sales and marketing issues. At the same time, most members said they want to avoid interfering with the state system on solvency and consumer protection matters.

Rep. LaFalce retired from Congress and cannot introduce his proposal in the 108th Congress. ASSURE  expects the House Financial Services Committee to further explore how federal law may be used to supplant or support state laws for regulating insurance in the United States. There is a good chance that new federal charter bills will be introduced in Congress, and ASSURE will continue to actively participate in the legislative debate on this issue.

ASSURE Position

An optional federal insurance charter is unnecessary, and would undermine the current state system of insurance supervision by creating a dual regulatory system. ASSURE opposes the federal charter proposals that were introduced in Congress during 2002.

ASSURE is committed to improving and defending state insurance regulation by supporting greater efficiency and uniformity in regulatory practices while proactively and aggressively maintaining vital consumer protections and education initiatives, as well as promoting streamlined national standards that recognize a unique and evolving state-based marketplace.

Other Materials 

• Text of H.R. 3766  (2002) [PDF]
  
• IIABA "Federal Tools" Proposal [PDF]
  
• What others are saying - 2002 Congressional Hearings
  
• Optional Federal Charter Supporters / Opponents
  
• NCOIL Resolution in Support of State Regulation of Insurance (7/11/03)