THE INSURANCE INFORMATION ACT
From The States
David Giusti

David Giusti is a Director for State Net's Financial Services Division (www.statenet.com), an online federal and state legislative research company located in Washington, DC.

AS A FOLLOW-UP to the U.S. Treasury's Blueprint for a Modernized Financial Regulatory Structure, Congress held insurance regulatory reform hearings this past summer. Various proposals were considered to improve regulatory efficiency and promote competitiveness in the international market. Discussions also centered on the pressing need to enhance federal government proficiency in insurance matters to better equip it in responding to catastrophes like 9/11 and Katrina.

The Insurance Information Act of 2008 (H.R. 5840), introduced by Representative Paul Kanjorski (D-PA) in April, gained momentum during these hearings. The bill creates the Office of Insurance Information within the Treasury Department to advise the president and Congress on domestic and international policy issues regarding insurance. With the exception of health insurance, the federal government would be more able to develop expertise in major policy issues such as financial guarantee insurance, catastrophe insurance, and reinsurance. Additionally, the Office would serve as the federal authority in international insurance trade agreement negotiations.

The legislation was strongly supported by the American Council of Life Insurers (ACLI), the National Association of Insurance and Financial Advisors (NAIFA), and many large insurers.

Many believe enactment of Insurance Information Act legislation would be the first step to an optional federal insurance charter.

The bill quickly passed the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises and was expected to be treated as non-controversial legislation when it reached the House floor. The measure appeared well on its way to swift consideration in the Senate until concerns regarding the Office's preemptive powers became more apparent. In fact, House Speaker Nancy Pelosi (D-CA) pulled the bill from the suspension calendar after Congresswoman Jackie Speier (D-CA) raised the question of H.R. 5840 endangering a California ballot initiative requiring prior approval of property and casualty rates.

Controversial preemption provisions

Proponents of the legislation are still pushing the Bush Administration to use executive authority to establish the Insurance Information Office, but that does not appear likely. Although the legislation will not be passed before the November elections, it is certain to be revisited in 2009. However, the controversial preemption provisions are expected to be debated further during the next congressional session.

The current bill language allows for state law to be preempted if it is determined to be inconsistent with Federal policy on international insurance matters. The intent is to ensure that domestic and international insurers are held to the same standards. The legislation does not provide the Office of Insurance Information with supervisory or regulatory authority over the business of insurance or any insurers.

Although the newly created office would only have a limited ability to preempt the states, opponents believe the powers are too broadly defined. Many assert that the legislation would undermine the legislative and regulatory authority of state insurance lawmakers. Others worry that the creation of the Office of Insurance Information lays the foundation for an optional federal charter.

Opposition to federal regulation

As previously reported, states along with many consumer advocacy groups oppose the federal government taking a hands-on approach to insurance regulation. The fear is that this approach would jeopardize states' premium tax revenue; harm smaller, regional insurance companies; and compromise states' consumer protections. Letters of opposition were drafted by Maine, Nevada, Wisconsin, and Ohio. The National Association of Professional Insurance Agents (PIA), National Conference of State Legislators (NCSL) and National Conference of Insurance Legislators (NCOIL) also expressed strong objections

Another concern is the lack of transparency with regards to the preemption process. The Property Casualty Association of America maintains that the preemption of state insurance laws should occur through legislation from an elected official, not administrative action of the Office of Insurance Information.

Still, while many believe enactment of this legislation would be the first step to an optional federal insurance charter, the National Association of Mutual Insurance Companies (NAMIC) feels otherwise. Since the newly created office would establish a sole authority for negotiating international trade agreements and provide the federal government easy access to insurance information, NAMIC believes the two most compelling arguments for pursuing an optional federal charter are neutralized.

Interestingly, the National Association of Insurance Commissioners (NAIC) has become more open to federal involvement and is also offering conditional support for the legislation. They think the Office of Insurance Information will enhance their ability to send and receive important and confidential information with the federal government.

Most agree the federal government need to be more involved in analyzing complex insurance issues on a domestic and international basis.

The recent failures in the financial services industry were not the result of state insurance regulation, but most agree the federal government needs to be more involved in analyzing complex insurance issues on a domestic and international basis. While H.R. 5840 offers such federal oversight, it will certainly require further vetting in 2009.