Congress Considers Two Insurance-Regulation Proposals

By Claire Duffett
The Central New York Business Journal

Congress is considering two separate bills that attempt to modernize insurance regulation.

Both proposals seek to address two main issues - unnecessary costs and delays in the new-product approval process.

The first bill will grant the federal government power to regulate insurance. The proposal went to committee July 11.

The bill, sponsored by senators John Sununu (R-N.H.) and Timothy Johnson (D-S.D.), gives insurance companies the option of abiding by yet-to-be-determined federal regulations or sticking with the current state regulatory system, explains Timothy Dodge, director of research at the DeWitt-based industry group the Independent Insurance Agents & Brokers of New York, Inc. (IIABNY).

Bill S5209, called the National Insurance Act of 2006, was introduced in the Senate Banking Committee July 11.

Traditionally, insurance in the United States is regulated exclusively by the states.

Under the act, insurers and producers could elect federal or state regulation, charters, and licenses.

The legislation would allow insurers licensed under the federal system to do business in any state without the need for additional licenses, according to the New York City-based Insurance Information Institute (III).

Under federal law, national insurers would be subject to regulation from the Treasury Department's National Insurance Commission, the III says.

The purpose would be to allow national insurers to register and launch new products less expensively and more easily, Dodge explains.

However, enlisting two governing bodies will only increase bureaucracy, lessen continuity between policies, and confuse the consumer, Dodge argues.

The pro-federal-regulation argument Other insurance professionals and organizations support the legislation, including the American Council of Life Insurers (ACLI), which released a statement endorsing the bill.

"The National Insurance Act of 2006 would provide a streamlined regulatory structure with uniform and consistent laws, regulations and consumer protections," ACLI says. "The need for the optional federal charter has been made abundantly clear during Congressional debates over issues such as data security. Congress has struggled to provide equal protections to insurance consumers in the face of differing state laws on the topic.

"Absent a federal charter, it is unclear how Congress could enact legislation that ensures that consumers in all states are treated equally," the organization adds.

Many of the national carriers support the bill because they believe it will reduce overhead costs of registering new products with every state, Dodge explains.

Sununu and Johnson in a joint statement, argue that the Act will establish a dual system, similar to the "highly successful" banking regulatory bodies. A federal charter will enhance the industry's clarity.

"Streamlining an overwhelming and tangled web of state rules for financial regulation, licensing, policy forms, rates, and market conduct exams under an 'optional federal charter' system will encourage greater competition," Sununu said.

Keeping insurance a state issue

In contrast IIABNY supports the alternative legislation that keeps insurance regulation a state matter but makes regulations more uniform between states.

Michael Oxley (R-Ohio) is sponsoring the State Modernization and Regulatory Transparency (SMART) Act.

The proposal addresses insurance's 15 main regulatory areas including market conduct, licensing, life and health insurance, commercial and personal lines property/casualty insurance, reinsurance, and antifraud data exchanges.

The SMART plan was first introduced in 2004. Since its introduction, it has been considered and rejected several times, and other representatives have introduced similar proposals.

The law requires states to comply with uniform standards in an effort to facilitate new product introduction without the addition of a federal regulatory system, Dodge says.

Dodge and IIABNY cite several reasons for opposing the National Insurance Act and supporting the SMART Act.

First, state insurance regulation provides a level of responsiveness that could not be matched by a federal system because the volume of complaints filed with the federal system would far outweigh the newly established department's ability to process them, Dodge argues.

Second, a dual system would confuse consumers who have problems with a policy. A consumer would have to discern whether his policy was approved through the state or the federal government before he could file a complaint.

Third, IIABNY argues the dual structure would undermine enforcement of insurers' obligation to their customers, Dodge says.

The SMART Act offers a more middleground approach to solving the insurance industry's regulatory problems, he says.

Source: Central New York Business Journal (www.cnybj.com)

From: Insurance News Net (www.insurancenewsnet.com)