By Cyril Tuohy
If consumers ever wondered why the insurance industry seems so antiquated at times, all they had to do was step inside Room 2128 of the Rayburn House Office Building earlier this month and listen to a tapestry of testimony delivered before a House panel.
There, before the House Subcommittee on Insurance and Housing Chairman Rep. Randy Neugebauer, R-Texas, and Rep. Michael E. Capuano, D-Mass., the committee’s ranking Democrat, stood Connecticut Insurance Commissioner Thomas B. Leonardi, one of the most powerful insurance commissioners in the country.
Calmly, deliberately, the commissioner told the lawmakers that federal insurance overseers weren’t particularly welcome within the conclave of state regulators discussing “confidential” matters related to insurance companies.
“The presence of a non-regulator, even as well intentioned as Treasury, would threaten the objective independence of not just state regulators, but regulators at the federal and international levels who participate in the (supervisory) colleges, as well,” he said.
Then, almost in the same breath, the commissioner went on to say that if there were “specific changes” to the state regulatory system that the Federal Insurance Office (FIO) would recommend, then by all means, the nation’s insurance commissioners would be “happy to consider those.”
As it turns out, the FIO had plenty of recommendations for the nation’s state-based regulatory system overseen by 50 different insurance commissioners.
The recommendations were outlined in a hefty tome with a title as sweeping as the report was weighty: “How To Modernize And Improve The System Of Insurance Regulation In The United States.” The 65-page document, submitted to Congress in December as part of the Dodd-Frank Consumer Protection and Wall Street Reform Act, landed on desks with a thud.
The report said states should develop “capital adequacy and safety/soundness and….move forward cautiously with the implementation of principles-based reserving.” The report also said that states should develop corporate governance principles, and state regulators “should build toward effective group supervision by continued attention to supervisory colleges.”
And those were just the near-term recommendations for the states. The report had an equal number of recommendations involving direct federal involvement over the industry.
Those recommendations pertained to instituting federal standards and extending oversight of mortgage insurers, implementing uniform treatment of reinsurers, monitoring of supervisory colleges, developing new policies for military personnel, implementing pilot programs for rate regulation, the use of personal information for insurance pricing, monitoring progress with collecting taxes on surplus lines carriers, and pushing for producer licensing – an issue with which the industry is on board.
The report even recommended consulting with Native American and tribal leaders to discuss making insurance coverage on Native American and tribal lands more affordable.
For the nation’s new federal overseer, the bottom line was crystal clear: “The question is not whether federal involvement in insurance regulation is necessary, but where and how that involvement should be calibrated,” said Michael McRaith, director of the Federal Insurance Office.
But for state insurance czars like Leonardi, broad-based oversight measures likely were not specific enough.
Welcome to the latest round of sparring between calls for more federal oversight in the insurance affairs of states. It is a decades-long debate, where calls for more standardization and efficiency have been met by equally vociferous voices in support of state-based hegemony.
And so it was this time around as House members convened Feb. 4 to explore recommendations to modernize insurance regulation.
At times, it seemed as if the special-interest lobbies testifying before the House panel were more than happy to speak about compromise between federal and state jurisdictions, one of the reasons for the patchwork of regulations under which the industry operates.
The Independent Insurance Agents and Brokers of America, a trade group representing a network of 250,000 agents, brokers and employees, said there was nothing in the FIO report to “alter or question its fundamental and steadfast support for state insurance regulation.”
In agreement with some of the recommendations in the FIO report, the IIABA also said it was just as “skeptical about others,” said Jon Jensen, president of Cornell Insurance Group, who testified on behalf of the IIABA.
Instead, the IIABA appeared to endorse a middle ground, what it called “targeted federal action,” to resolve regulatory weaknesses, only so long as it could be done “without displacing or undermining the state-based framework.”
Life insurance carriers, who backed the creation of the FIO, found the report a “thoughtful critique of the insurance regulatory framework,” the American Council of Life Insurers (ACLI) said. It, too, stayed away from specifics.
Instead, the ACLI encouraged the FIO “to strengthen its relationship with the states” to ensure robust, insurance-based capital standards.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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