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NU Online News Service, Oct. 2, 3:45 p.m. EDT
The chairman of a key House Financial Services panel last night unveiled draft legislation creating a federal insurance regulatory office that tracks with minor omissions legislation submitted to Congress by the Obama administration.
A draft of legislation creating a “Federal Insurance Office” with strong authority over solvency and international issues was released by Rep. Paul Kanjorski, D-Pa.., chairman of the Capital Markets Subcommittee of the House Financial Services panel.
The American Insurance Association voiced support for the legislation, but the National Association of Mutual Insurance Companies said it goes too far.
Blain Reithmeier, a spokesman, said the bill “properly addresses the need for a strong national voice on insurance issues at the federal level.”
He added, “It also addresses persistent concerns over the U.S.’s ability to conclude international agreements with respect to insurance by allowing the U.S. to engage authoritatively with the global community in prudential areas and providing the Federal Insurance Office with the requisite power to preempt state insurance measures that are inconsistent with international agreements.
Mr. Reithmeier concluded, “We look forward to testifying on this topic next Tuesday, and to suggesting some amendments that advance the important objectives of the draft legislation.”
The National Association of Mutual Insurance Companies voiced strong opposition.
“NAMIC recognizes the federal government’s need for better information about the property and casualty insurance industry and enhanced coordination with international financial services regulators,” said Jimi Grande, senior vice president of federal affairs for the NAMIC. “But meeting that need shouldn’t require the creation of a de facto federal regulator.”
NAMIC supported Rep. Kanjorski’s original proposal for an Office of Insurance Information, which provided information and international coordination while recognizing the primacy of state regulation and protecting confidential information, but said it opposes the proposal.
“The renamed Federal Insurance Office proposal goes well beyond information analysis and international cooperation, however, and could serve as the first step toward federal regulation of property and casualty insurance,” Mr. Grande said.
The bill will be the subject of a full committee hearing Tuesday and is likely to be reported out by the committee to the full House by the end of the month.
After full House passage, it would then have to be reconciled with legislation dealing with financial services regulatory reform now being drafted in the Senate Banking Committee.
A key difference between the approaches of the House and Senate is that the House is dealing with financial services regulatory reform issues on a bill-by-bill basis, while the Senate Banking Committee plans to propose an omnibus bill with up to 13 titles incorporating all of its proposed financial services reform provisions.
The omnibus Senate Banking bill is expected to be unveiled late this month, followed by a prompt markup of the legislation by the committee.
The bill introduced by Rep. Kanjorski mirrors the legislation submitted by the Obama administration except for deletion of the subpoena and enforcement provisions sought by the Treasury in its legislation. That legislation would have created an “Office of National Insurance.”
The decision of Rep. Kanjorski to delete the two provisions was made at the request of industry and state regulatory representatives who oppose any initiatives by the federal government to have a role in insurance regulation.
The draft was released in advance of a hearing scheduled Tuesday by the full committee to discuss the new Kanjorski bill as well as other components of financial services reform legislation, specifically, the Investor Protection Act and the Private Fund Investment Advisers Registration Act.
The FOI bill would create an insurance agency within Treasury to designate insurers as systemically risky.
The FOI would be headed by a director appointed by the Secretary of the Treasury. Its authority would cover all lines of insurance except health insurance. It would also have the authority to oversee the Terrorism Risk Insurance Act.
The new agency would have the power to monitor the insurance industry, including identifying gaps in regulation that could contribute to systemic risk issues; represent the US internationally at the International Association of Insurance Supervisors (IAIS) and in the negotiation of international regulatory agreements (called “International Insurance Agreements on Prudential Measures”).
It also would authorize the Secretary of the Treasury to negotiate and enter into these international agreements.
The agency would have the authority to preempt state insurance measures; consult with the states on insurance matters; and advise the secretary on domestic and prudential international insurance policy issues.
In releasing his draft Rep. Kanjorski said, “Insurance plays a vital role in the smooth and efficient functioning of our economy, but the credit crisis highlighted the lack of expertise within the federal government regarding the industry, especially during the collapse of American International Group and last year’s turmoil in the bond insurance markets.”
He said a “Federal Insurance Office will provide national policymakers with access to the information and resources needed to respond to crises, mitigate systemic risks and help ensure a well-functioning financial system.”