WASHINGTON -- Congressional members want to intervene on behalf of state regulators to ensure that international insurance rules being negotiated by the Treasury and the Federal Reserve Board do not impact the current state-based U.S. insurance regulatory system.
At a Wednesday hearing on insurance oversight, Rep. Blaine Luetkemeyer, R-Mo., chairman of the Housing and Insurance Subcommittee of the House Financial Services Committee, said the issue “continues to cause consternation in the industry.”
At that hearing, Michael McRaith, director of the Federal Insurance Office, which is a member of the international group, the International Association of Insurance Supervisors (IAIS), said the uproar is misplaced, and a representative of the Fed said it was wrong for the industry and members of Congress to claim that the IAIS could establish rules U.S. insurers would be forced to comply with.
The bill was introduced by Sen. Dean Heller, R-Nev., and Jon Tester, D-Mont.
The bill would establish an Insurance Policy Advisory Committee on International Capital Standards and other insurance issues at the Fed, and require the Fed and Treasury Department to annually issue a report and give congressional testimony on insurance activities at the International Association of Insurance Supervisors and Financial Stability Board.
At the same time, Rep. Sean Duffy, R., Wis., is circulating a draft bill that would go further, by constraining the Fed from issuing rules dealing with insurance capital requirements.
The legislation was introduced against the background of three hearings, Tuesday, Wednesday and today on insurance regulatory issues in the Senate and House.
And, today, the concern was voiced today in testimony before the Senate Banking Committee by Kurt Bock, CEO of Country Financial Corp., Bloomington, Ind. He was testifying on behalf of the Property Casualty Insurers Association of America and the National Association of Mutual Insurance Companies.
He said Congress should direct U.S. representatives to “forcefully advocate” for the current state-based approach of risk-based capital requirements on a legal entity basis designed for policy holder protection, “and not quantitative global capital standard for non-systemic insurance groups that focuses on protection of creditors, shareholders and others, beyond policyholders.”
Bock explained that industry officials are concerned because state officials have been barred from participating in activities of the International Association of Insurance Supervisors (IAIS).
Instead, in a move supported by the Fed and Michael McRaith, director of the Federal Insurance Office (FIO), the IAIS has “shut out interested parties from its working meetings,” Bock said.
He said this is happening “despite the introduction of bipartisan and bicameral Congressional resolutions and the opposition of state legislators.”
Bock said this was opposed by our state regulators but they were not supported by our federal representatives.
“The resulting procedures are far less transparent than those of the states and the National Association of Insurance Commissioners,” he said. “This episode serves as an unfortunate example of the lack of coordination between the members of the U.S. regulatory team participating internationally.”
In introducing the legislation, Heller said the Fed and Treasury “have significantly increased their authority over the U.S. insurance market, and they are now beginning to use their influence more internationally.”
Heller said, “Our country has a unique 50 state-based insurance regulation system that has served us well and must be preserved.”
He added that this bi-partisan legislation “will establish critical principles and increase Congressional oversight of the Federal Reserve and Treasury Department in order to ensure our best interests are represented at international insurance discussions.”
The legislation would also compel the Fed and Treasury, in consultation with the NAIC, to complete a study on the impact on consumers and markets in the U.S. before supporting any international insurance proposal or international insurance capital standard.
Heller and Tester said their bill also seeks to have the NAIC have public observer status at IAIS meetings.
But, McRaith stated categorically that the concern was overblown. He said, “Simply put, international standards must, when implemented, serve the interests of U.S. consumers and industry and the national economy.”
And, Mark Van Der Weide, deputy director of the Fed’s Division of Banking Supervision and Regulation, added that, “It's important to note that any standards adopted by the IAIS are not binding on the Fed, the FIO, state insurance regulators, or any U.S. insurance company.”
In his comments to Luetkemeyer, McRaith said the IAIS “structural reforms” eliminated the “pay-per-play” dynamic under which the IAIS formerly operated, and increased the IAIS’ transparency and independence.”
McRaith said that, “No longer will the IAIS depend upon the $20,400 annual fee paid by industry observers. Now, open meetings and information will be available to all stakeholders, not just those who can afford the annual fee.”
InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected]
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