Industry Representatives to FIO: Move Cautiously Before Moving to Change Regulatory System
February 6, 2014 by Jeff Jeffrey, Washington Bureau manager: jeff.jeffrey@ambest.com
WASHINGTON – Insurance industry representatives told House lawmakers Feb. 4 that the Federal Insurance Office should help to fix inefficiencies in the regulation of the marketplace. But many of those who testified before the House Subcommittee on Housing and Insurance said the FIO should not move to establish “one-size-fits-all” regulations that could hamper competition both in the United States and internationally.
The report drew praise from industry representatives for calling on Congress to pass the National Association of Registered Agents and Brokers Reform Act, which deals with multistate licensing for insurance agents and brokers. The NARAB II bill, as it has become known, would create a nonprofit board that would allow insurance agents and brokers to obtain certification to operate on a multistate basis.
FIO Director Michael McRaith also drew praise from representatives of the property/casualty for recommending that state regulators promote more free-market competition in pricing and that states better coordinate market conduct examinations.
During the portion of the hearing dedicated to McRaith’s testimony, the FIO director said the federal government may be able to promote greater uniformity among the states in some aspects of insurance regulation (Best’s News Service, Feb 3, 2014).
In addition to NARAB II, the former Illinois insurance commissioner cited producer licensing, product approval, reinsurance captives and mortgage insurance as areas where state regulators have failed to bring their regulations in line with one another, despite years of complaints from the industry about inefficiencies in the oversight process.
However, the FIO should move cautiously in negotiations with international insurance supervisors, many of whom have sought to impose bank-centric regulations on the industry, industry representatives said.
“A number of international standards are developed based on a different mission or market structure than those applicable in the U.S., for example shifting focus to protecting investors or employers, or the need to set a higher bar against failures because of the absence of the safety net of guaranty funds,” said Robert Restrepo Jr., head of State Auto Insurance Cos., who testified on behalf of the Property Casualty Insurers Association of America. “Imposing the same regulatory standards and trip wires on every country when the underlying regulatory missions and systems are fundamentally different is not always in the best interests of American consumers. ”
The FIO has come out in support of an International Association of Insurance Supervisors proposal to include a global capital standard in the Common Framework for the Supervision of Internationally Active Insurance Groups.
Industry trade groups have said imposing such a standard could put U.S. insurers at a competitive disadvantage when operating overseas.
That said, J. Stephen “Stef” Zielezienski, senior vice president and general counsel for the American Insurance Association, said the FIO could prove instrumental in developing a single U.S. position that removes barriers to U.S. competitiveness.
“This is certainly easier said than done due to existing constitutional and statutory limitations that apply to those charged with developing, negotiating, and implementing any new rules for a complicated set of issues, including capital standards, accounting rules, the designation of Globally Systemically Important Insurers and group-wide supervision,” Zielezienski said. “The stakes are high and we must all be pulling in the same direction to get it right.”
Franklin Nutter, president of the Reinsurance Association of America, said the FIO has taken positive steps in its effort to develop covered agreements with other countries to find more efficient ways to regulate reinsurers doing business from outside the United States. The FIO is currently working with Treasury Secretary Jacob “Jack” Lew and the U.S. Trade Representative to develop covered agreements. “Once achieved, these covered agreements will facilitate reinsurance transactions to support economic activity and recovery in the U.S. as well as in foreign countries,” Nutter said.
Jon Jensen, chairman of government affairs for the Independent Insurance Agents and brokers of America, said his organization largely agrees with the FIO report that insurance regulation could be improved and modernized in certain areas, but that any federal action should be targeted and limited with day-to-day regulation left in the hands of state officials.
“The report recommends the use of targeted and limited federal intervention to address problems that the states are unable to resolve on their own,” Jensen said. “The report notes that federal action of this kind should be limited to those instances where demonstrated deficiencies exist, where there is a national interest in addressing a particular problem, and where state officials are unable — as a result of practical hurdles or collective action challenges — to resolve the challenges themselves.”
Also testifying were:
— Anthony Cimino, interim head of government affairs and vice president for insurance and trade for the Financial Services Roundtable.
— Paul Ehlert, president of Germania Farm Mutual Insurance Association, on behalf of the National Association of Mutual Insurance Companies.
— Gary Hughes, executive vice president and general counsel for the American Council of Life Insurers.
— Scott Sinder, a partner at Steptoe & Johnson, on behalf of the Council of Insurance Agents & Brokers.
During the portion of the hearing dedicated to McRaith’s testimony, the FIO director said the federal government may be able to promote greater uniformity among the states in some aspects of insurance regulation (Best’s News Service, Dec. 12, 2014).
The former Illinois insurance commissioner cited producer licensing, product approval, reinsurance captives and mortgage insurance as areas where state regulators have failed to bring their regulations in line with one another, despite years of complaints from the industry about inefficiencies in the oversight process. However, McRaith’s support of an expanded federal role in some aspects of the industry was met with criticism from some lawmakers on the panel, who argued the state-led system has proven itself to be capable of handling even the worst financial crises, like the one seen in 2008.
(By Jeff Jeffrey, Washington Bureau manager: jeff.jeffrey@ambest.com)