Insurance regulatory reform – a constant process

By enacting the McCarran-Ferguson Act in 1945, Congress permitted the states to continue their taxing and oversight of insurance. However, Congress did not give up its preemptive authority over insurance.

While Congress’ insurance regulatory reform efforts appear stalled as 2006 began, it is important to note that the states continue to move forward.

These efforts require all the states to contiue to move their efforts ahead in concert-as they have been doing with increasing success, aided by the National Association of Insurance Commissioners.

Still, as those advocating more federal involvement ready their renewed push and PIA readies its opposition, a quick review of how we all got here is in order.

A 29-year scenario

Much has happened in insurance regulation over the intervening 29 years since Sen. Edward Brooke’s (R-Mass.) proposal for optional federal charters was first introduced that adds impetus to reform of our existing regulatory system. But the underlying cause for reform remains the same, albeit more urgent.

By enacting the McCarran-Ferguson Act in 1945, Congress permitted the states to continue their taxing and oversight of insurance. However, Congress did not give up its preemptive authority over insurance.

In the Financial Services Modernization Act of 1999, more commonly known as Gramm-Leach-Bliley, Congress once again decided to retain and expand the functional state-oversight structure for insurance that had been created under McCarran-Ferguson. It relied upon the National Association of Insurance Commissioners to achieve the legislation’s aims.

The current system of insurance regulation consists of multiple federal venues, 55 state and territorial jurisdictions, and zone collaborations of NAIC oversight.

PIA believes that each of these insurance over-
sight venues is important and necessary. However, without more state and federal reforms, legal conflicts will

continue, imposing an increasing and costly burden, as well
as compliance conflicts.

PIA Proposals

In May 2000, the PIA National Board of Directors adopted a national policy. It embraced functional state oversight
of insurance to advance a more cohesive system. At the

same time, it reaffirmed PIA’s opposition to a federal-only
system, a state-by-state system that is dissimilar and non-coordinated (such a system doesn’t exist now), or an federal optional charter approach.

Under a federal optional charter, PIA agencies would
represent both federal and state-chartered carriers with federal and state-regulated products and state and federal oversight rules.

This traps independent agencies and brokerage firms
in the state-federal law and rules conflicts that already exist, and which we are trying to improve with these reforms.

The answer may be called national insurance standards.

But enacting a coordinated system of national insurance
standards cannot be accomplished with a one-venue,

one-proposal approach. It must include complemen-
tary action by all the states and regulatory bodies. This

will involve multiple bills, not just one, and it will take
years.

Yes, a lot of work and coordination.

Our approach is conservative, not radical. PIA has a series of suggested reform starting points that take their cues from the fine work already being done at the state, national and federal levels.

PIA believes this type of influential, collaborative
and well-informed effort

is possible and necessary. It has a proven track record of success.

This approach complements and is not in conflict with the NAIC’s on-going, successful efforts to advance regulatory modernization which, despite the usual grumbling from those who like to think that complex reforms can be enacted with one stroke of one pen, are moving expeditiously.

Those who may be tempted to over-simplify insur-
ance regulatory reform and treat it as if it can be boiled

down to one large omnibus federal bill are mistaken.

There is no single silver bullet that at one time, and in
one place, gets us all that we need. Those who propose that we go in such a direction are heading for a train wreck.

This is about keeping our business in business, keeping it competitive and able to meet our clients’ needs and our earnings goals.

Patricia A. Borowski is senior vice president of PIA National. She can be contacted at patbo@pianet.org.

Topics Legislation