PIA National opposes federal charters and the dual regulatory system they would require. Issue-at-a-glance: Federal charters for insurers. PROFESSIONAL • PIA opposes a federal-chartering system for insurers, even an optional one. INSURANCE • PIA is working for continuing reform of functional state regulation through creation and AGENTS adoption of federal standards. • PIA supports the “road map” approach as proposed by Rep. Michael Oxley (R-Oh.) as the basis for legislation in the House. • Creating a conflicting, competing federal-state insurance regulatory system is unneeded and 25 CHAMBERLAIN ST. counter-productive to effective oversight of the insurance industry. P. O. BOX 997 GLENMONT, NY 12077-0997 • The state-based regulatory system has been moving rapidly toward the goal of uniformity 800/424-4244 following the Gramm-Leach-Bliley Act and the goals it set. FAX: 888/225-6935 WEB: www.piany.org What’s happening right now: The House. Some legislative activity on the issue appears likely E-MAIL: [email protected] this year. On March 14, 2004, Michael Oxley (R-Oh.), chairman of the House Financial Services Committee presented a “road map to state-based insurance regulatory reform” to state insurance regulators. Oxley ruled out optional federal chartering or any type of dual insurance regulatory system, but said new federal regulations to create greater uniformity among state-level insurance marketplaces are necessary. Oxley outlined the plan in an address to the NAIC’s spring meeting. His plan would set up a Federal-State Advisory Council to coordinate future discussions over insurance tax policy and uniformity. He said the goal would be to build on the work already done by the NAIC to create a more uniform, efficient and market-based insurance regulatory system. Oxley told the NAIC his proposal would focus on creating a federal-state partnership structure rather than assuming federal control. It would include appointment of the Council (which would be run by state insurance commissioners and federal entities involved with national insurance programs), plus another federal appointee whose job would be to approve or disapprove recommendations of the Council. However, the federal appointee would have no direct regulatory authority—rather, state regulators would maintain authority over the business of insurance. Oxley cited six key areas as “critical weaknesses” in the current insurance structure that would be targeted for reform: (1) a more efficient way to review insurance products and get them to market more quickly; (2) continued improvement in agent licensing procedures; (3) streamlining insurer licensing by moving toward a single point of entry; (4) creating more effective, coordinated market conduct oversight; (5) eliminating price controls (“competitive rating”) and commercial lines deregulation; and (6) creating an improved federal-state partnership to coordinate insurance-related public policy and promote uniformity. The “roadmap” was developed after considering testimony presented at 14 hearings conducted on the subject by a subcommittee of the Financial Services Committee. The hearings were held over the past three years by the Capital Markets, Insurance and Government-Sponsored Enterprises Subcommittee, chaired by Richard Baker (R-La.) Rep. Oxley set the first hearing on the “roadmap” proposal for March 31. Some type of draft bill is expected following the hearings. What’s happening right now: The Senate. The Senate’s thinking on the federal/state regulatory issue is less clear. Senator Chuck Schumer (D-NY), originally a proponent of federal charters, has never followed through on his plan to introduce a bill. Hollings bill. On July 8, 2003, Senator Ernest “Fritz” Hollings (D-South Carolina) introduced legislation (S. 1373) that would create federal regulation of insurance. Hollings’ bill, The Insurance Consumer Protection Act of 2003, would create in the Commerce Department a five- member Federal Insurance Regulatory Commission (IRC) that would establish standards, regulate rates and policy forms on a prior-approval basis, investigate market conduct and oversee solvency. The IRC would hear challenges from consumers on rate hikes and have authority over licensing standards. The existing antitrust exemption under the McCarran-Ferguson Act would be repealed by S.1373, 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. 1373 has been referred to the Senate Committee on Commerce, Science and Transportation. The Committee held a public hearing Oct. 2, 2003 on the bill but took no further action. PIA came out strongly against this bill. “This is probably one of the worst insurance regulatory proposals advanced thus far,” declared PIA’s Pat Borowski. “As a consequence, PIA is opposed to S. 1373 and will vigorously oppose it.” As a Democrat, Sen. Hollings is in the Senate Minority, and he is not planning to seek reelection this fall. NAIC involvement. Ernst Csiszar, president of NAIC, has been on the defensive after consumer groups charged in early March that he and NAIC have a radical “deregulation” agenda which would be accomplished by ceding regulatory authority to the federal government. Csiszar, the commissioner in South Carolina, vehemently denied the charge, saying he and NAIC are firmly behind continued state regulation. Other than state/federal relations, which is his top issue, Csiszar has identified three objectives. They are: (1) progress on speed-to-market; (2) market conduct examinations; and (3) solvency—improving the NAIC’s risk-based capital system. The NAIC in recent activity has made considerable progress toward achieving uniformity and speed-to-market goals. These include: Interstate Compact. This proposal is geared to speed-to-market for life insurance products. A NAIC working group is developing bylaws and standards for the approval of products. States would sign on to join the compact by passing model legislation. A few smaller states already are on board, but there is some disappointment at the slow pace of state legislative action on joining the compact to date—perhaps because bylaws and product standards are not yet in place. The compact bill has been introduced in Connecticut (where it has had a public hearing), New York and New Hampshire, and is expected to be introduced in New Jersey this spring. Licensing. The NAIC has made great progress toward creating a uniform licensing system. Over 40 states have passed a version of the NAIC model producer licensing act. The NAIC has adopted a National Insurance Producer Registry and Producer Data Base that greatly facilitates licensing and appointments in multiple states. Market Conduct. The NAIC and NCOIL (National Conference of Insurance Legislators) are in the final stages of working out a model law that would simplify market conduct regulation. Background. Since the 1960s, we have seen sporadic proposals to repeal the McCarran Ferguson Act. This law delegates to the states the regulation of the insurance business, and exempts the business of insurance from federal antitrust provisions to the extent it is regulated by the states. PIA has consistently opposed these repeal bills, and has strongly supported state regulation. Part of the Gramm-Leach-Bliley Act (which permitted integration of the banking and insurance industries) established goals of uniformity and reciprocity in insurance licensing. States met their initial goals within the GLB time frames. But promoters of federal regulation have not been satisfied with the GLB targets. They want an optional federal-chartering system for insurers. Gramm-Leach-Bliley established the ‘functional regulation’ approach, which PIA supports. This approach means that an entity’s insurance operations are subject to state regulation, regardless of the nature of the entity (i.e. bank, brokerage, insurer, insurance agent, etc.). PIA also supports a “national standards” approach as illustrated by Gramm-Leach-Bliley’s uniformity and reciprocity goals for producer licensing. By agreeing to support “national standards,” PIA recognizes the need for some national uniformity in standards implemented by the several states. Pushing the federal-chartering concept are some major insurance company trade associations, including the American Insurance Association (AIA), the American Council of Life Insurers (ACLI) and the Council of Insurance Agents & Brokers (CIAB). Opposing federal chartering are some other major trade associations, including the Property Casualty Insurers Association of America (PCI) and the National Association of Mutual Insurance Companies (NAMIC), as well as PIA and the Independent Insurance Agents and Brokers of America (IIABA). So, the industry is far from united on this issue. New York Sen. Charles Schumer announced in 2001 that he was drafting a bill to provide an optional federal charter. This bill went through numerous drafts but has never been introduced. On the House side, former Rep. John LaFalce (D-N.Y.), in 2002 introduced H.R. 3766, the Insurance Industry Modernization and Consumer Protection Act. The LaFalce bill, like the current Hollings bill, was not necessarily supported by the insurance trade groups that want federal chartering. The Schumer draft and the LaFalce bill would have created a federal insurance regulator within the Treasury Department; established a new category of “national insurance company” requiring