Property and Casualty Regulation Included in New Federal Bill

Posted 5/4/2008
By Robert L. Redding Jr.

With Tim Geithner, secretary of the U.S. Treasury, continuing to refer to comprehensive regulatory reform - and both U.S. Senate Banking Committee Chairman Chris Dodd, D-Conn., and Ranking Minority Member Richard Shelby, R-Ala., referring to federal insurance regulation as an option that should be considered - Capitol Hill is increasing its interest in the federal regulation of the insurance industry.

The Treasury Department has assisted banks, Wall Street firms and now is offering aid to life insurers. Many members of Congress are concerned that the regulatory focus has been on banks and solely AIG. Insurance companies are a natural "next move" for policymakers.

On April 2, 2009, Reps. Melissa Bean, D-Ill., and Ed Royce, R-Calif., introduced H.R. 1880, the National Insurance Consumer Protection Act. Although, like some previous bills, the legislation allows insurers to opt into a federal regulatory versus state regulatory system, H.R. 1880 also includes property and casualty insurance. In addition, the bill establishes a systemic risk regulator. This regulator shall make corrective action recommendations to the commissioner of the Office of National Insurance at the U.S. Department of Treasury or to the state commissioner to take action to mitigate or avoid actions taken by an insurer or affiliate that would have serious adverse effects on the economic conditions and financial stability. An important note for repairers is that the national insurance commissioner can determine that an insurer is systemically important and require the insurer to be nationally chartered.

The National Insurance Consumer Protection Act will:

• Establish a parallel, national system of regulation and supervision for insurers, insurance agencies and insurance producers (agents and brokers), similar to the dual banking system.

• Establish an independent Office of National Insurance within the Department of Treasury, headed by a commissioner with a five-year term.

• Authorize the commissioner to issue charters for insurers for life insurance, property and casualty, reinsurance.

• Authorize the chartering and licensing of national insurance agencies and the licensing of national insurance producers.

• Require state insurance commissioners to share information with a systemic risk regulator.

• Establish a Coordinating National Council for Financial Regulators based on an expanded version of the President's Working Group for Capital Markets.

• Establish a comprehensive set of supervisory and regulatory powers for the commissioner.

• Establish enforcement powers for the commissioner patterned after those available to the federal banking agencies.

• Establish a Division of Consumer Affairs.

Last year, risk management specialists from the academic community encouraged a federal regulatory system for insurance that included property and casualty insurance. This was a highlight at a conference hosted by the American Enterprise Institute. Both Geithner and Federal Reserve Chairman Ben Bernanke have encouraged a broad review of our insurance regulations.

The Automotive Service Association has recognized for some time that our state regulatory system for insurance has not worked for consumers and repairers. In addition to efforts to repeal the McCarran-Ferguson Act, ASA has held numerous meetings and forums with the U.S. Department of Justice and the Federal Trade Commission in an attempt to heighten the federal interest in insurance regulation. Without an act of Congress, this will not occur. Although an optional federal regulatory system is not the best approach, ASA recognizes that these legislative proposals continue to progress toward a policy goal that will improve the plight of consumers and repairers. A 50-state forum for insurance regulation cripples small businesses and consumers from the beginning. In addition to a lack of resources to present strong positions counter to those of insurers in all 50 states, the complexities of new insurance products often stymie state insurance regulators. Can all states really afford to compete or recruit regulatory specialists to monitor complex insurance products offered by insurers? The federal government will offer much more opportunity for young recruits to regulate a very sophisticated industry.

As has been noted by consumer advocates testifying in previous congressional hearings on insurance reform, some states have very active consumer advocacy groups that are capable of monitoring and initiating strong state regulatory proposals for insurers. Unfortunately, this is not the case in most states. The structure of the media is one more example of why federal insurance regulation is necessary. Although each state capital has a media presence, no state center can compete with the national media presence of Washington, D.C. The media provide a public forum for the positions of consumers and small business. The media scrutiny now in play for the banking industry and financial services firms would also be available for the insurance industry.

The collision repair industry does not have the resources for a 50-state insurance regulatory effort. A decentralized collision repair industry has worked against the needs of individual collision repairers. Efforts to maintain multiple trade organizations at all levels has diluted resources and assured an insurance industry without the necessary checks and balances of a strong collision repair industry. One national association and a federal regulatory structure for the insurance industry will ensure that the collision industry puts its best effort forward to protect repairers and consumers. Property and casualty insurers get it. They have one major national trade association and support the present 50-state regulatory system.

To view the text of H.R. 1880, please go to ASA's 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.