House Financial Services Committee Issues Report on International Insurance Standards Act

WASHINGTON, July 7 -- The House Financial Services Committee issued a report (H.Rpt. 115-804) on legislation (H.R. 4537) to preserve the state-based system of insurance regulation and provide greater oversight of and transparency on international insurance standards setting processes. The report was advanced by Rep. Jeb Hensarling, R-Texas, on July 3.

Excerpts of the report follow:

Purpose and Summary

On December 4, 2017, Representative Sean Duffy introduced H.R. 4537, the "International Insurance Standards Act of 2017"to preserve the State-based system of insurance regulation and provide greater oversight and transparency on international insurance standard negotiations.

H.R. 4537 requires that: (1) any such agreement entered into by entities representing the United States may not be agreed to unless it is consistent with existing federal and state law as well as recognizing existing Federal and State laws on the regulation of insurance; (2) federal entities participating in negotiations must coordinate and consult with state insurance commissioners; (3) Congress must be consulted on negotiations prior to negotiations taking place, as well as during and prior to entering into an agreement; (4) authority is granted to Congress to conduct a "fast-tracked" disapproval process; and (5) Congress has similar disapproval authority on covered agreements.

Background and Need for Legislation

For nearly 150 years, U.S. insurance companies of every kind--including property-casualty, life, reinsurance, health, and auto--have been regulated primarily by the states. Congress and the states have occasionally reviewed the effectiveness of the state-based regulation of insurance and coordinated efforts to achieve greater regulatory uniformity. In 1945, Congress passed the McCarran-Ferguson Act (15 U.S.C. 1011 et seq.), which confirmed the states' regulatory authority over insurance except where a federal law expressly provides otherwise.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) (Pub. L. No. 111-203) enlarged the federal government's role in the insurance industry by creating a federal office specifically tasked with insurance matters. The Dodd-Frank Act established a Federal Insurance Office (FIO) at the U.S. Department of the Treasury (Treasury) and charged the FIO director with representing the interests of U.S. insurers during the negotiation of international agreements and advising the Office of the U.S. Trade Representative (USTR) during trade negotiations.

The United States' state-based regulatory framework is the strongest and most robust insurance regulatory architecture in the world. No other system of insurance regulation combines the state-based focus on policyholder protection with the four, interconnected aspects of consumer protection, solvency protection, market-conduct protection, and resolution protection.

However, critics of the current U.S. negotiating platform argue that international insurance standards negotiations could be used as a "back-door"method to implement European insurance standards in the United States. The European insurance regulatory model is bank-centric and less policyholder friendly than the U.S. insurance regulatory regime. H.R. 4537 would provide increased transparency throughout the negotiation process and authorizes an approval authority for Congress to ensure that international negotiations recognize the primacy of the current U.S. insurance regulatory framework.

On an ongoing basis, representatives from the United States are involved in negotiations regarding global insurance standards in international forums, including the International Association of Insurance Supervisors (IAIS) in Basel, Switzerland. The IAIS is a voluntary membership-driven organization of insurance supervisors and regulators from over 190 jurisdictions in more than 140 countries. The IAIS does not have executive powers, rather its role is to develop regulatory guidelines and best practices for national insurance supervisors to adopt. The outcomes of these discussions could have a considerable impact on U.S. insurance companies, markets, policyholders and consumers. H.R. 4537 would ensure that the representatives from the United States would maintain a strong, unified voice that will ensure that the successful, state-based, policy-holder centric system of insurance regulation is the model and basis for any international discussions.

As the IAIS negotiates global capital standards, governance, and market conduct, H.R. 4537 would position the U.S. to participate in the discussions and protect it from international agreements that could be detrimental to U.S. insurers, policyholders and markets.

Hearings

The Committee on Financial Services' Subcommittee on Housing and Insurance held a hearing examining matters relating to H.R. 4537 on October 24, 2017.

Committee Consideration

The Committee on Financial Services met in open session on December 12, 2017 and ordered H.R. 4537 to be reported favorably to the House as amended by a recorded vote of 56 yeas to 4 nays (Record vote no. FC-135), a quorum being present. Before the motion to report was offered, the Committee adopted an amendment offered by Mr. Duffy by voice vote.

Committee Votes

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion to report legislation and amendments thereto. The sole recorded vote was on a motion by Chairman Hensarling to report the bill favorably to the House as amended. The motion was agreed to by a recorded vote of 56 yeas to 4 nays (Record vote no. FC-135), a quorum being present.

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Committee Oversight Findings

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House of Representatives, the findings and recommendations of the Committee based on oversight activities under clause 2(b)(1) of rule X of the Rules of the House of Representatives, are incorporated in the descriptive portions of this report.

Performance Goals and Objectives

With respect to clause 3(c)(4) of rule XIII of the Rules of the House of Representatives, the Committee advises that the bill contains no measure that authorizes funding, so no statement of general performance goals and objectives for which any measure authorizes funding is required.

New Budget Authority, Entitlement Authority, and Tax Expenditures

In compliance with clause 3(c)(2) of rule XIII of the Rules of the House of Representatives, the Committee adopts as its own the estimate of new budget authority, entitlement authority, or tax expenditures or revenues contained in the cost estimate prepared by the Director of the Congressional Budget Office pursuant to section 402 of the Congressional Budget Act of 1974.

Congressional Budget Office Estimates

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House of Representatives, the following is the cost estimate provided by the Congressional Budget Office pursuant to section 402 of the Congressional Budget Act of 1974:

U.S. Congress,

Congressional Budget Office,

Washington, DC, February 8, 2018.

Hon. Jeb Hensarling,

Chairman, Committee on Financial Services,

House of Representatives, Washington, DC.

Dear Mr. Chairman: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 4537, the International Insurance Standards Act of 2017.

If you wish further details on this estimate, we will be pleased to provide them. The CBO staff contact is Matthew Pickford.

Sincerely,

Keith Hall,

Director.

Enclosure.

H.R. 4537--International Insurance Standards Act of 2017

H.R. 4537 would require negotiators of international insurance agreements to oppose any proposal that is inconsistent with existing federal and state laws. The bill would require negotiators to consult with state insurance commissioners and the Congress. The bill also would provide the Congress with a process to disapprove of any international insurance agreement.

Any budgetary effects of enacting H.R. 4537 would depend, in part, on how often the United States negotiates international insurance agreements and how frequently the negotiators must consult and coordinate with state insurance commissioners. CBO has no basis for predicting that frequency but expects that the cost of such consultations would be less than $500,000 per year.

Enacting H.R. 4537 would not affect direct spending or revenues; therefore, pay-as-you-go procedures do not apply.

CBO estimates that enacting H.R. 4537 would not increase net direct spending or on-budget deficits in any of the four consecutive 10-year periods beginning in 2028.

H.R. 4537 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act.

The CBO staff contact for this estimate is Matthew Pickford. The estimate was approved by H. Samuel Papenfuss, Deputy Assistant Director for Budget Analysis.

Federal Mandates Statement

This information is provided in accordance with section 423 of the Unfunded Mandates Reform Act of 1995.

The Committee has determined that the bill does not contain Federal mandates on the private sector. The Committee has determined that the bill does not impose a Federal intergovernmental mandate on State, local, or tribal governments.

Advisory Committee Statement

No advisory committees within the meaning of section 5(b) of the Federal Advisory Committee Act were created by this legislation.

Applicability To Legislative Branch

The Committee finds that the legislation does not relate to the terms and conditions of employment or access to public services or accommodations within the meaning of the section 102(b)(3) of the Congressional Accountability Act.

Earmark Identification

With respect to clause 9 of rule XXI of the Rules of the House of Representatives, the Committee has carefully reviewed the provisions of the bill and states that the provisions of the bill do not contain any congressional earmarks, limited tax benefits, or limited tariff benefits within the meaning of the rule.

Duplication of Federal Programs

In compliance with clause 3(c)(5) of rule XIII of the Rules of the House of Representatives, the Committee states that no provision of the bill establishes or reauthorizes: (1) a program of the Federal Government known to be duplicative of another Federal program; (2) a program included in any report from the Government Accountability Office to Congress pursuant to section 21 of Public Law 111-139; or (3) a program related to a program identified in the most recent Catalog of Federal Domestic Assistance, published pursuant to the Federal Program Information Act (Pub. L. No. 95-220, as amended by Pub. L. No. 98-169).

Disclosure of Directed Rulemaking

Pursuant to section 3(i) of H. Res. 5, (115th Congress), the following statement is made concerning directed rulemakings: The Committee estimates that the bill requires no directed rulemakings within the meaning of such section.

Section-by-Section Analysis of the Legislation

Section 1. Short title

This section cites H.R. 4537 as the "International Insurance Standards Act of 2017''.

Section 2. Congressional findings

This section acknowledges that the State-based system for insurance regulation in the United States has fostered an open and competitive marketplace with a diversity of insurance products to benefit policyholders and consumers. The section also finds that the State-based system of insurance regulation protects policyholders by regulating to ensure the insurer's ability to pay claims, which has been a hallmark of the success of the current United States insurance regulatory regime. Further adds that the Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111-203) reaffirmed the State-based insurance regulatory system.

Section 3. Requirement that insurance standards reflect United States policy

This section requires that any party negotiating international insurance standards, on behalf of the Federal Government, may not vote in favor of any agreement if it is inconsistent or does not reflect the current United States system of insurance regulation including the primacy of policyholder protection in solvency regulation. It codifies the primacy of the United States' system of insurance regulation during international insurance negotiations. Additionally, this section specifies that the Secretary of the Treasury, during negotiations, only represents the views of the Department of the Treasury. Nothing in this section shall be construed to prevent participation in negotiations of any proposed agreement or standard.

Section 4. State insurance regulator involvement in international standard setting

This section requires entities representing the Federal Government during international insurance negotiations to closely consult with state insurance regulators, which includes coordination, and inclusion in meetings. State insurance commissioners will have the authority to submit designees in their stead.

Section 5. Consultation with Congress

This Section requires those representatives of the Federal government entering into international negotiations on insurance to first notify the relevant Congressional committees (House Committee on Financial Services and the Senate Committee on Banking, Housing, and Urban Affairs) prior to initiating any discussions on international standards, during negotiations, and prior to entering into an agreement. Written consultation with Congress includes: (1) the intention of the United States to participate in international negotiations; (2) the nature and objectives of such negotiations; (3) how the agreement will be implemented; including how it is consistent with existing federal and state laws; (4) the impact on the Competitiveness of U.S. insurers; and, (5) the impact on U.S. consumers. This section also requires the Secretary of Treasury to consult with the Federal Advisory Committee on Insurance before entering into an agreement under section 3 of this Act. The Administration must submit the final text of the negotiation to Congress for a 90 day layover for Congressional review before signing the agreement.

Section 6. Congressional review

This section provides Congress with "fast-track" procedures for disapproval of the international negotiated agreement. H.R. 4537 would provide for a joint resolution to be introduced within 60 days from the date the Administration submits the agreement to Congress. Should the relevant Committees fail to report the resolution, a privileged motion to discharge the Committees is in order.

Section 7. Covered agreements

Amends the Dodd-Frank Act and provides negotiating authority to the Secretary of the Treasury, instead of the Director of the Federal Insurance Office (FIO). Going forward, covered agreements would not include new prudential requirements for U.S. insurers. Additionally, this section requires Federal negotiators to closely consult and coordinate with state insurance commissioners, or their designees, and also include them in meetings. This section also provides Congress with a submission and layover period as well as a fast-tracked disapproval process for covered agreements.

Changes in Existing Law Made by the Bill, as Reported

In compliance with clause 3(e) of rule XIII of the Rules of the House of Representatives, changes in existing law made by the bill, as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, and existing law in which no change is proposed is shown in roman):

Changes in Existing Law Made by the Bill, as Reported

In compliance with clause 3(e) of rule XIII of the Rules of the House of Representatives, changes in existing law made by the bill, as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, and existing law in which no change is proposed is shown in roman):

TITLE 31, UNITED STATES CODE

The full text of the report is found at: https://www.congress.gov/congressional-report/115th-congress/house-report/804/1?r=2

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