Transcript 172c407d440a4fefab68358ecba506adOxleyBakerInsuranceLegProp

State-Based Insurance
Regulatory Reform Concepts
Rep. Richard Baker (LA)
Chairman Mike Oxley (OH)
Financial Services Committee
Foundation for Reform
14 Hearings on insurance regulatory reform in past 3 years
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Hearing entitled “Protecting Consumers: What can Congress do to help financial regulators
coordinate efforts to fight fraud?”
Hearing entitled “NARAB & Beyond”
Hearing entitled “Insurance Product Approval: The need for modernization”
Hearing entitled “Over-regulation of automobile insurance: a lack of consumer choice”
Hearing entitled “America’s Insurance Industry: Keeping the promise”
Hearing entitled “Retirement Protection: Fighting fraud in the sale of death”
Hearing entitled “Insurance Regulation and Competition for the 21st Century” (Three days of
hearings)
Roundtable discussion on insurance uniformity
Hearing entitled “The effectiveness of state regulation: why some consumers can’t get
insurance”
Hearing entitled “Retirement Security: What seniors need to know about protecting their futures”
Hearing entitled “Reforming Insurance Regulation—Making the marketplace more competitive for
consumers”
Action Plan
Our Committee is now developing a
roadmap of goals and concepts to be
discussed with all the relevant parties.
This roadmap will be fleshed out into
legislation over the next several
months.
We want your input!
Strengths of the State System
 Expertise
 Laboratory
for reform
 Awareness of local problems
 Responsiveness to consumers
 NAIC leadership
Weaknesses of the Current System
Significant inefficiencies in an increasingly national
market, particularly for:
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Speed-to-market
Agent licensing
Company licensing
Market conduct
Price controls
Lack of a State partnership to coordinate uniform
insurance regulation
Dangers of Inaction
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Consumers lack a competitive market with
adequate and affordable options
Problems are getting worse
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Increased competition from other sectors, rising loss
pressures, inefficient regulatory expenses, higher levels
of volatility
Dangers of Inaction
NAIC can benefit from
Federal support (past
successes resulted from
Congressional pressure)!
Congressional inaction
will quickly turn into
overreaction when the
next scandal occurs
Capacity Squeeze from Long Term
Substandard ROE is Unsustainable
25%
20%
15%
10%
5%
0%
-5%
93
94
95
96
US P/C Insurers
Diversified Finl.
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99
All US Industries
Comm. Banks
00
01
Life
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03*
Congress WILL act
“Politics is the Art of the Possible”
The House Financial Services Committee will:
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NOT consider an optional federal charter (OFC)
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NOT create a federal regulator
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NOT consider a dual Federal—State regulatory
system
NOT consider minor incremental reform
Solution:
Targeted State-based Reform
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Coordinate full and effective State participation in key NAIC
programs
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Promote nationwide uniform standards based on NAIC / NCOIL
models
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Use appropriate domestic deference for choice-of-law conflicts
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Establish a non-regulatory Federal-State Insurance Coordinator
evenly co-chaired by State insurance commissioners and key Federal
policymakers to coordinate insurance activities among the States
and the Federal Government
Specific Goals
Life (annuities, life insurance, longterm care, etc.)
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The states have created the Single Electronic Rate and
Form Filing System (SERFF) that allows insurers to
electronically submit their forms to a single computer
system used by most States. For life insurance products,
the States have also proposed an Interstate Compact,
which was intended to be a single review process that
would grant form approval for use in all participating
states.
GOAL: Build off of SERFF and a strengthened Interstate
Compact to achieve single-point filing and time-certain
review.
Specific Goals
Property-Casualty / Personal Forms
(auto, homeowners, etc.)
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Beyond SERFF, the States have not been able to make
significant progress on streamlined review of propertycasualty products. States often take well over a year to
review new products, review standards are not always
articulated, and products may be denied on the basis of
unpublished and informal “desk drawer” rules. Even for
previously approved products that are being reissued
with only technical changes, the 50 State review process
can take years to complete.
GOAL: Single point of filing with expedited review
based on clear standards.
Specific Goals
Property—Casualty / Commercial Forms
(commercial property, liability, etc.)
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Insurance policies sold to multi-State businesses are
subject to review and oversight in all the affected States
which frequently creates choice-of-law conflicts. Many
States have begun to reduce regulatory review
altogether for sophisticated commercial policyholders,
but there is no nationwide standard to define who is
sophisticated.
GOAL: Single choice-of-law for large multi-State
commercial policyholders; limited review for
sophisticated commercial policyholders.
Specific Goals
Property-Casualty / Price Controls
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States with free-market competition among
insurers have consistently achieved more
choices and better prices for consumers in the
long term than States that have attempted to
restrict choices by imposing price controls on the
marketplace.
GOAL: Illinois-style free-market competition
(like all other financial products)
Specific Goals
Company Licensing
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The NAIC has established the Accelerated Licensure
Evaluation and Review Techniques (ALERT), which is
intended to create a single point-of-entry for company
licensing with time deadlines for all States to complete
their reviews. As with other NAIC programs, ALERT has
failed because not all States are participating and there
is no enforcement mechanism for ALERT’s deadlines.
GOAL: Single point-of-entry for company licensing
based on adequate standards.
Specific Goals
Agent Licensing
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The States were required by GLBA to achieve
reciprocal licensing in a majority of jurisdictions
within a set time frame or else an SRO would be
established. Over 40 States have now achieved
this goal, but many big States (ie. CA and FL)
have not.
GOAL: Nationwide reciprocal licensing with
movement towards uniformity.
Specific Goals
Market Conduct
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The Committee investigated and criticized the States market
conduct efforts for lacking standards, being unnecessarily
duplicative and expensive, and too often resulting in political fishing
trips for “gotcha” fines. NCOIL and the NAIC have quickly
responded by working towards a model law that would require the
States to use a coordinated system of standardized market conduct
review based on performing market analysis to identify patterns of
abuse and on-site review of company systems and controls. NCOIL
has just adopted this model law and the NAIC may adopt the same
model verbatim shortly.
GOAL: Ensure nationwide and uniform adoption of a
consensus market conduct law.
Specific Goals
Enforcement / Federal-State
Coordination of Insurance Policy
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Any effort to promote more uniform insurance standards will require an
enforcement mechanism. Many of the groups opposed to a Federal
insurance regulator have recognized the need for a Federal-State insurance
coordinator to mediate disputes and ensure coordination of insurance policy
among State and Federal entities. At the same time, many of the groups
adamantly in favor of a Federal insurance regulator have recognized that a
Federal advocate can be created to monitor policy and budget issues
without necessitating a new Federal K-Street bureaucracy. Both groups
want to ensure that any Federal nexus created has appropriate protections
to prevent abuse of political power.
GOAL: Create an evenly divided Federal-State insurance coordination
council without regulatory authority that could help resolve conflicts
between State and Federal policy under this Act and other Federal laws
affecting insurance and advise the President and Congress on insurance tax
policy. A Presidential appointee would additionally be created without any
regulatory or licensing power for the sole purpose of approving or
disapproving the coordination recommendations of the council.
Additional Issues
Seeking Input
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Reinsurance
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Health Insurance
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streamlining uniformity and choice-of-law conflicts
overlap between life and health insurance
regulation
Surplus lines insurance
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streamlining efficiencies
Conclusions
The House Financial Services Committee
WILL ACT!
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We have worked closely with lead regulators and policyholder
representatives in developing the goals
The goals are supported by all of the agent/broker groups and the
majority of the major p/c and life insurers
The approaches are focused on making the State systems work
without necessitating a Federal regulator
We want State insurance regulators and the NAIC to be full partners
in this process
We Want Your Support
Shared Goals
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The House Financial Services Committee has and will continue to work in close
partnership with State commissioners and the National Association of Insurance
Commissioners to improve the efficiency of insurance markets.
Our goal is to ensure that all types of insurance are available as widely as possible
throughout the country and that consumers are given the benefit of as many
competitive and meaningful choices as possible. We have just been through the
marketplace crisis caused by 9/11 and we need to see insurance capacity and
coverage availability expand, not contract.
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Our goal is for the State regulators to work together in a uniform and coordinated
system to ensure that consumers are effectively protected from fraud.
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Our goal is to retain the State-based system of regulation and to improve that system
for the future.
We share the same goals, and I want to commit to you that with your
support and cooperation, State insurance regulators and the NAIC will be
full partners in this process towards reform.