As it was preparing to hear the views of the Bush administration on the issue July 18, the Senate Banking Committee last week signaled a measure of bipartisan support for greater federal involvement in insurance regulation going forward.
At the same time, however, committee members indicated that if the insurance industry wants a revised regulatory structure, it will have to accept one that provides strong consumer protection provisions.
The broad scope of the pre-emption language in legislation that has been introduced "raises some interesting hypothetical possibilities," said Sen. Paul Sarbanes, D-Md., ranking minority member, in voicing views that struck a chord on both sides of the aisle.
Ten people testified before the panel July 11, including representatives of the life and property-casualty industries, the National Association of Insurance Commissioners and the Consumer Federation of America.
"These should be examined very carefully, very thoroughly," he said. "It raises the question of fundamentally changing the landscape. I'm not prejudging it, but it is a matter of some import and consequence."
Specifically, Sarbanes was commenting on the only legislation introduced on the issue, S. 2509, the National Insurance Act of 2006. The bill was introduced in April by two members of the committee, Sen. John Sununu, R-N.H., and Sen. Tim Johnson, D-S.D.
In his comments, Sununu said he recognizes the proposal is "a framework for this debate–something substantive that people can look on, critique and look to improve."
He said Congress appears to recognize that "national legislation is required at this stage" and without naming it, noted the State Modernization and Regulatory Transparency Act (SMART) proposal drafted by House Financial Services Chairman Michael Oxley, R-Ohio, and Capital Markets Subcommittee Chairman Richard Baker, R-La.
This legislation would create national standards for agent licensing and other functions, but it stops short of creating a federal charter. "Legislative proposals have been circulated in the House and reinforce the understanding that some action is necessary," Sununu said.
Sununu and Johnson especially defended provisions in the bill dealing with consumer protection, pointing out that their bill would establish a separate division of consumer affairs within a federal regulator, would subject insurers to antitrust laws, and would mandate establishment of regional consumer protection offices.
Responding later to Sarbanes' concerns, Jack Dolan, a vice president at the American Council of Life Insurers, said the industry is "prepared to support very strong consumer protections" in any optional federal charter legislation, citing the strong consumer protection language in the Sununu/Johnson bill. "We would support the best of the best of the state regulatory scheme on the national level," Dolan said.
In another key move, Sen. Richard Shelby, R-Ala., chairman of the committee, for the first time appeared receptive to the idea of an optional federal charter and welcomed the work done by Sununu and Johnson, although he did not endorse any proposal.
The most outspoken critic of the Sununu/Johnson bill was Sen. Jim Bunning, R-Ky., who compared the legislation with the Federal Emergency Management Agency's handling of the National Flood Insurance Program.
"We need to move with extreme caution when talking about reversing the entire history of insurance regulation in this country," Bunning said. "There should be a high hurdle for expanding the federal bureaucracy and imposing new regulations."
Once involved in a new area of regulation, Congress has a tendency "to create monsters of bureaucracies that only grow and never go away," he said.
While there is a need for greater cooperation between the states for agent licensing and product approvals, the current system is not "broken," Bunning said.
The next step will be the July 18 hearing on "Perspectives on Insurance Regulation." Randal K. Quarles, Under Secretary of the Treasury for Domestic Finance, will represent the Bush administration.
Those also testifying include Dr. Scott Harrington, Alan B. Miller Professor, the Wharton School, University of Pennsylvania; and Dr. Terri Vaughan, Robb B. Kelley Distinguished Professor of Insurance and Actuarial Science, Drake University in Des Moines, and a former NAIC president and Iowa insurance commissioner.
