House Searching for Right Insurance Reform Mix

Posted 6/11/2009
By Robert L. Redding Jr.

Although there is growing interest in the reform of the current state system of insurance regulation, there is limited consensus among members of Congress.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, has indicated some interest in a life insurance option federal program only.

The most recent hearing in Washington, D.C., did demonstrate the increasing interest in pursuing a broader regulatory mission for Congress. Rep. Paul Kanjorski, D-Pa., chairman of the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, held the latest hearing on "How Should the Federal Government Oversee Insurance?

Kanjorski's opening statement did reflect the growing interest in the federal regulation of insurance.

Witnesses at the hearing included:

• Baird Webel, specialist in Financial Economics, Congressional Research Service;

• Patricia Guinn, managing director, Global Risk and Financial Services Business, Towers Perrin;

• J. Robert Hunter, director of insurance, Consumer Federation of America;

• Martin F. Grace, James S. Kemper professor, Department of Risk Management and Insurance, Georgia State University; and

• Scott Harrington, Alan B. Miller professor, Wharton School, University of Pennsylvania.

Grace, from Georgia State University, was also a presenter at last year's American Enterprise Institute conference on insurance regulation. Grace discussed at the conference a research paper, "Insurance Regulation: The Need for Policy Reform." Important to collision repairers was the emphasis Grace placed on regulatory reform versus repeal of the McCarran-Ferguson Act. Hunter has been a frequent witness in Congress supporting the repeal of McCarran. Grace has argued that McCarran's antitrust exemption is much more limited in scope than many understand it to be and a repeal would have a much more restricted impact on the insurance marketplace than projected.

Grace noted that Congress had not considered a broad range of regulatory possibilities and that "more reform ideas should be on the table."

The Congressional Research Service was asked to review the issue of federal insurance regulation. Webel outlined seven current policy options for Congress to consider:

1. Do Nothing

2. Creation of a Federal Office of Insurance Information

3. Harmonization of State Laws Via Federal Pre-emption

4. Create a Federal Systemic Risk Regulator

5. Create a Federal Solvency Regulator

6. Establish a Federal Insurance Charter

7. Reform the Complete Financial Service Regulatory System.

Some members of the committee and members interested in insurance reform believe repealing McCarran-Ferguson will be sufficient to empower federal agencies and protect those states that have aggressive consumer protection programs. Rep. Jackie Speier, D-Calif., expressed such views during her opening remarks.

Hunter, as in the past, argued for continued state regulation, specifically noting:

• "While CFA supports a greater federal insurance role, we vigorously oppose an optional federal charter, since such a system cannot control systemic risk, has failed miserably in protecting banking consumers and sets up pressures that can only lead to reduced consumer protections through regulatory arbitrage.

• "We believe that consumer protection is best accomplished at a government regulatory level close to the people and we therefore believe that the states should continue to handle consumer protection regulation at this time."

CFA continued to call for the repeal of McCarran-Ferguson.

The Automotive Service Association (ASA) supports both the repeal of McCarran and the federal regulation of property and casualty insurance.

The hearing clearly illustrated the divergence of opinions in the Congress. Despite this variance in policy views, pressure is increasing among policymakers to move on insurance regulation. Rep. Melissa Bean, D-Ill., a member of the subcommittee, has introduced legislation, H.R. 1880, the National Insurance Consumer Protection Act, which includes an optional federal charter for property and casualty. Please note that State Farm has endorsed this legislation. Allstate has also endorsed the concept of the federal regulation of insurance mounting an ad campaign in support of this policy in Washington, D.C.

ASA's collision leaders will be on Capitol Hill this summer, asking members of Congress to support the federal regulation of property and casualty insurance and the repeal of McCarran-Ferguson. To participate in ASA's Capitol Hill Fly-In, please go to our legislative Web site, www.TakingtheHill.com.

Bob Redding is the Automotive Service Association's Washington, D.C., representative. He is a member of several federal and state advisory committees involved in the automotive industry. For more information about the legislative activities of ASA, visit www.TakingTheHill.com.