Shape of Congress will inform agenda

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WASHINGTON--The ongoing financial markets crisis almost guarantees that insurance regulation will be on the next Congress' agenda, industry observers say.

The nature of any new regulation could well depend on a handful of congressional elections, according to industry observers. Shifts in the composition of key committees appear likely, as do increased Democratic majorities in both houses. There is the possibility of a filibuster-proof Democratic majority in the Senate, where Democrats would either hold 60 seats outright or close enough to 60 to block filibusters with the support of a Republican senator or two.

"The agenda is going to be clearly dominated by the financial markets crisis and the issues related to that," said Leigh Ann Pusey, chief operating officer of the American Insurance Assn. in Washington. "Our opinion is that includes systemic risk regulation issues and financial markets regulatory reform.

"All indications are they will keep these issues on a fast track," she said. "They feel the public is going to demand some accountability and some change in how these institutions are regulated."

The financial meltdown will lead to "a congressional inquisition into the regulation of insurance," said Joel Wood, senior vp at the Council of Insurance Agents & Brokers in Washington

"What will that mean?" he asked "Does that mean a federal regulator superimposed on top of state regulation for holding companies? Does it mean a federal option? Does it mean a more incremental (Office of Insurance Information)-styled federal presence? Those are open questions."

"Looking forward, (federal) regulation is probably going to encompass insurance," said Ben McKay, senior vp in the Property Casualty Insurers Assn. of America's Washington office. "Whether that can live independently of and comfortably with a state regulatory system has yet to be determined."

If Sen. Barack Obama, D-Ill., wins the presidency, his running mate, Joe Biden, D-Del., would leave his post as chairman of the Senate Foreign Relations Committee. Senate Banking, Housing and Urban Affairs Committee Chairman Sen. Christopher Dodd, D-Conn., would be next in line to become chair of the Foreign Relations Committee if he chooses. That would put Sen. Tim Johnson, D-S.D., in line to chair the Banking Committee.

Sen. Johnson co-sponsored legislation that would create an optional federal charter for insurers and producers.

But the chief GOP Senate advocate of the OFC--Sen. John Sununu, R-N.H.--was trailing his Democratic opponent in recent polls. "Sen. Sununu is probably the Republican most endangered in the Senate," said Jimi Grande, vp-federal and political affairs in the National Assn. of Mutual Insurance Cos.' Washington office.

"If there's an Obama administration, there's a lot of speculation Jack Reed could be tapped for a cabinet post," said Mr. Grande, referring to another member of the Banking Committee--Sen. Jack Reed, D-R.I.

Mr. Grande also noted that yet another committee member--Sen. Elizabeth Dole, R-N.C.--was in a tight race.

Every change in membership could be crucial, he noted. "It's a small committee--11 Democrats and 10 Republicans--so change three or four faces, including the chairman, and you've got a new dynamic as we head into perhaps the most profound reform of financial services since the 1930s," Mr. Grande said.

"I think if you have a change in chairmanship, it's significant," said PCI's Mr. McKay of the prospect of Sen. Dodd leaving his Banking Committee position. "In this case, you're losing a senator who has decades of knowledge related to our industry and the financial services industry generally."

Some OFC proponents may be trying to inject the issue into the larger debate, said NAMIC's Mr. Grande. "Those that would like to see an OFC value the optional component and they value the deregulatory component. And this next Congress is not going to be in the mood to deregulate or give companies options to choose a regulator."

On the other side of the Hill, the chairman of the House Financial Service's Committee's Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises--Rep. Paul Kanjorski, D-Pa.--is in a tight race with Hazelton, Pa., Mayor Lou Barletta. Mr. Barletta, a Republican whom Rep. Kanjorski defeated in 2002, became nationally known for his tough stance against illegal immigration.

"The most significant race to the insurance industry is Rep. Kanjorski's race," said PCI's Mr. McKay.

Rep. Kanjorski is regarded as one of the most knowledgeable lawmakers in terms of insurance. "Many in the financial services sector have worked very well with him," said AIA's Ms. Pusey.

Rep. Kanjorski was critical in the passage and reauthorization of the federal terrorism insurance backstop and most recently has advocated establishing an Office of Insurance Information within the Treasury Department, an initiative supported by most of the property/ casualty insurance industry. If Rep. Kanjorski loses, there is no clear indication who would replace him on the committee.

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