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By Richard Bouhan
With this limited focus on insurance, along with so much of the detail of the proposal lacking, there is no assurance that the insurance industry, much less the surplus lines / wholesale distribution system, will not be dramatically impacted by the proposal as it is implemented. However, the lack of specific attention to insurance does suggest that industry is not directly in the “reform” sights of the Administration’s guns.
NAPSLO strongly supports state regulation of insurance in that it offers consumers better protections and stronger regulation and is heartened that the Administration proposal embraces the continuation of state insurance regulation. NAPSLO also believes that using federal legislation to enhance the efficiency of state regulation is the best approach to reforming the regulatory system and is pleased that the Treasury took into consideration NAPSLO recent comments on the subject of insurance regulatory reform in writing its report.
In the Treasury Department’s report, entitled: Financial Regulatory Reform – A New Foundation, the Treasury outlined six principles for insurance regulation, including “Increased national uniformity through either a federal charter or effective action by the states.” In speaking about possible action by the states, the report stated that “increased consistency in the regulatory treatment of insurance – including strong capital standards and consumer protections – should enhance financial stability, increase economic efficiency and result in real improvements for consumers.”
The other insurance regulatory principles for insurance outlined in the report were: Effective systemic risk regulation with respect to insurance; Strong capital standards and an appropriate match between capital allocation and liabilities for all insurance companies; Meaningful and consistent consumer protection for insurance products and practices; Improve and broaden the regulation of insurance companies and affiliates on a consolidated basis, including those affiliates outside of the traditional insurance business; and International coordination.
The proposal also includes plans for the creation of several new financial services regulatory agencies, including the Financial Services Oversight Council, Consumer Financial Protection Agency, and National Bank Supervisor.
To promote national coordination in the insurance sector, the report proposed the creation of an Office of National Insurance (ONI) within Treasury, which would gather information, develop expertise, negotiate international agreements, and coordinate policy in the insurance sector.
The Treasury’s report said the ONI would be responsible for identifying the emergence of any problems or gaps in regulation that could contribute to a future crisis. The ONI would also recommend to the Federal Reserve any insurance companies that the Office believes should be supervised as Tier 1 Financial Holding Companies. The ONI would also carry out the government’s existing responsibilities under the Terrorism Risk Insurance Act.
NAPSLO believes the NRRA would help streamline the regulatory system and could work with the Treasury’s proposals ,and we look forward to working with the White House, the House and the Senate on this legislation.
NAPSLO Participates in White House Meeting Prior to the release of the report, in early June, Maria Berthoud, NAPSLO Washington Representative, with B&D Consulting, and other industry representatives met with Diana Farrell, Deputy Director of the National Economic Council and Deputy Assistant to the President, and Michael Barr, Assistant Secretary for Financial Institutions at the Department of Treasury to discuss financial services reform and the insurance industry. Other groups attending included the PCI, IIABA, AIA, ACLI, CIAB, NAMIC, NAIC, NAIFA and the Financial Roundtable.
This meeting entailed significant discussions on the future of financial services regulation. It was important for NAPSLO to be at this meeting in order to be able to explain the role of surplus lines insurance and the critical part it plays in the economy. Subsequent to the meeting, NAPSLO was asked by Administration officials for detailed positions on financial service and insurance regulation, as well as information on the surplus lines industry which was to be used in developing the Administration report on financial services regulatory reform. NAPSLO submitted a lengthy report which included its positions on insurance regulation and how the surplus lines and wholesale distribution system functioned on behalf of the insurance consumer.
During the White House discussions, there was spirited discussion regarding whether insurance should be regulated through a federal charter or if states should continue their supervisory role. NAPSLO urged that federal standards be examined as a viable approach to reforming insurance regulation, citing such legislation as the NonAdmitted Reinsurance Reform Act of 2009 (HR 2571), and NARAB (HR 2554), as examples of legislation aimed at overcoming the inefficiencies of state regulation without losing a high level of consumer protection.
NRRA Senators Evan Bayh (D-Ind.) and Mel Martinez (R-Fla.) introduced the Nonadmitted and Reinsurance Reform Act of 2009 in the Senate on June 25, along with co-sponsors Senators Bill Nelson (D-Fla.) and Mike Crapo (R-Id.) The bill was previously introduced in the House of Representatives in May. NAPSLO was instrumental in getting these two important members of the Senate Banking Committee to sponsor and introduce this legislation in the 111th Congress.
The NRRA (HR 2571 in the House and S 1063 in the Senate) is aimed at streamlining and reducing barriers in state regulation of surplus lines insurance and reinsurance. It would create a uniform regulatory system, while preserving the role of the state regulator. In addition to Senators Bayh and
This bill would simplify the tax remittance and compliance responsibilities surplus lines brokers must discharge, and bring efficiency and cost reduction to regulatory compliance in placements with multi-state exposures. Such reform would benefit not only the brokers and underwriters who provide surplus lines insurance but also consumers who ultimately pay the price for the inefficiencies.
In May, Rep. Dennis Moore (D-Kan.) and Rep. Scott Garrett (R-NJ), introduced H.R. 2571 in the House. The House passed similar versions of the NRRA in the last two sessions of Congress. The Senate took up a similar bill in 2007 but it took no action prior to the end of the 110th Congress, requiring that the bill be reintroduced in the 111th Congress.
We are hoping to see action take place soon on these surplus line reforms and believe there will be wide support for the legislation, noting that NAPSLO and other industry organizations have worked together in advocating enactment of this legislation.
Consumer Financial Protection Agency (CFPC) Act of 2009 NAPSLO's Washington D.C. representative has reviewed the proposed Consumer Financial Protection Agency (CFPC) Act of 2009 , and based on its analysis, if passed, would have the following impact on the insurance industry:
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