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Issue October 12, 2009 |
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WASHINGTON—The question of how much power should be vested in a proposed federal insurance overseer continues to divide the insurance industry as Congress considers a bill to create a Federal Insurance Office.
The depths of the division were evident last week as the House Financial Services Committee held its first hearing on the proposed Federal Insurance Office Act of 2009.
A draft version of the bill was unveiled a few days before the hearing by Rep. Paul Kanjorski, D-Pa., chairman of the committee's Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises. The bill would establish the Federal Insurance Office within the Treasury Department. The office could pre-empt state regulators if they discriminated against a non-U.S. insurer subject to an international insurance agreement, or it could pre-empt state regulation if it is inconsistent with an international insurance agreement on prudential insurance matters.
The office also would have broad data-gathering authority, coordinate federal efforts, and establish federal policy on prudential aspects of international insurance matters, according to the draft.
“The credit meltdown highlighted the lack of expertise within the federal government regarding the insurance industry, especially during the collapse of American International Group and last year's turmoil in the bond insurance markets,” Rep. Kanjorski said during last week's hearing. “My bill would rectify these shortcomings and promote stability in our insurance markets.”
Rep. Kanjorski has offered legislation previously that would set up an Office of Insurance Information within Treasury, but that office would have lacked pre-emptory power over state regulators and focused instead on advising the federal government on insurance matters. The new bill, which is a substitute for the previous version, reflects a July Obama administration proposal to establish a more powerful Office of National Insurance within Treasury (BI, July 27).
However, the latest bill contains the “potential for mission creep,” Janice Abraham, president and chief executive officer of Chevy Chase, Md.-based United Educators Insurance, told the committee. Appearing on behalf of the Des Plaines, Ill.-based Property Casualty Insurers Assn. of America, Ms. Abraham expressed concern about the possible dual regulation of insurers. PCI supports state regulation of insurers.
The Washington-based American Insurance Assn., however, as a longtime supporter of a federal regulatory option for insurers, welcomed the bill.
“While the discussion draft does not create a national functional insurance regulator, the Federal Insurance Office, if structured correctly, would represent a substantial contribution toward broadening and deepening our nation's understanding of the critical role of insurance in our financial system,” Stef Zielezienski, AIA's senior vp and general counsel, told the panel.
The Risk & Insurance Management Society Inc. has “supported this original concept since it was introduced last year by Rep. Kanjorski” and has made it a legislative priority, Deborah Luthi, RIMS director-external affairs and director-enterprise risk management for Sacramento, Calif.-based Matheson Inc., said in an interview. “We support it. We would really like to see the office strengthened and, in that regard, sent comments to Rep. Kanjorski and Chairman Frank's staff at their request,” she said, referring to Financial Services Committee Chairman Barney Frank, D-Mass.
The National Assn. of Mutual Insurance Cos., though, says the draft proposal goes too far.
“It appears that the stated goals and objectives of the office no longer exactly match the actual language,” Jimi Grande, senior vp in NAMIC's' Washington office, said after the hearing.
The original version of the bill would have stopped at bringing greater insurance expertise to Washington, through the proposed Office of Insurance Information, he said.
Many of the changes in the new bill, “are dangerously close creating a potential federal regulator. A lot of the language in the data collection is overly broad. What's critically important for NAMIC is we have to be sure this isn't a wolf in sheep's clothing,” Mr. Grande said.
“The fact that the Kanjorski legislation is disappointing people on both sides of the equation—those who feel it goes too far and those who feel, it doesn't go far enough—is probably evidence that he struck the right balance,” Joel Wood, senior vp of the Council of Insurance Agents and Brokers in Washington, said in an interview.
For reprints of this story, please contact Lauren Melesio at 212-210-0707 or email lmelesio@crain.com
