DATE: JUNE 10, 2008

TO: NCOIL LEGISLATORS

FROM:MIKE HUMPHREYS

NCOIL STATE-FEDERAL RELATIONS DIRECTOR

RE: REP. KENNEDY TESTIFIES BEFORE U.S. HOUSE SUBCOMMITTEE

CAUTIONS AGAINST OFFICE OF INSURANCE INFORMATION (OII)

Attached are

  • Rep. Kennedy’s testimony for the June 10 House Subcommittee hearing
  • an NAIC press release entitled NAIC Offers Conditional Support For Establishing Office of Insurance Information

Hearing testimony and video may be found at:

This morning, NCOIL President Representative Brian P. Kennedy (RI) participated in a U.S. House Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises hearing entitled H.R. 5840, the Insurance Information Act of 2008.The hearing was called to receive comments on H.R. 5840, a bill introduced by Subcommittee Chair Congressman Paul Kanjorski (D-PA).

Rep. Kennedy expressed concerns with the H.R. 5840 discussion draft, including:

  • a lack of legislative presence
  • the role of the National Association of Insurance Commissioners (NAIC) in the OII
  • the scope of an OII
  • the fact that an OII would lay the foundation for an Office of National Insurance (ONI) and an optional federal charter (OFC)
  • a need to recognize state-based regulatory successes, such as the Interstate Insurance Product Regulation Compact

Two panels comprised of government and private witnesses participated, including representatives of the Treasury Department, Illinois Division of Insurance/NAIC, American Insurance Association (AIA), American Council of Life Insurers (ACLI), Reinsurance Association of America (RAA), and Property Casualty Insurers Association of America (PCI).

H.R. 5840

H.R. 5840 would create a federal Office of Insurance Information (OII) within the U.S. Department of the Treasury to collect, analyze, and advise the federal government on international and domestic insurance issues. Among other things, H.R. 5840 would permit the OII to preempt state laws that conflict with new international insurance agreements—which the OII could enter into on behalf of the United States.

H.R. 5840 would also expand the role of the NAIC by

  • permitting the OII to engage in information-sharing contracts with the NAIC
  • authorizing the OII to serve as a liaison between the NAIC and the federal government on international and domestic insurance issues
  • and expanding the number of NAIC representatives on an OII Advisory Group—that has no legislative representation

COMMENTARY

Rep. Kennedy was the sole witness with significant concerns regarding the bill, saying he would oppose the legislation in its current form. Every other witness except PCI supported H.R. 5840, with a few amendments. While some members of the Subcommittee, notably Congressmen Donald Manzullo (R-IL) and Ruben Hinojosa (D-TX), expressed concern over preempting state statutes, a majority of the Subcommittee seemed to support the concepts in H.R. 5840. It is worth noting that the Subcommittee chair and Ranking Member are co-sponsors of the legislation.

We anticipate that the Subcommittee will look to move the legislation this year, perhaps even before the NCOIL Summer Meeting in July. While it could pass the House this session, it is very unlikely that it will be taken up by the Senate, as the Senate will only begin reviewing insurance issues in the next few weeks.

FUTURE NCOIL ACTION

NCOIL will prepare a follow-up letter to the Subcommittee that summarizes our key concerns. The letter could also serve as a template for individual state legislators to contact their House representatives about H.R. 5840.

Also, NCOIL will prepare a letter to individual state insurance commissioners—with copies to state insurance committee chairs—regarding the NAIC’s “conditional support” for an OII.

The NCOIL State-Federal Relations and NCOIL-NAIC Dialogue Committees will discuss this hearing, H.R. 5840, and other federal insurance measures at the upcoming NCOIL Summer Meeting.

OPENING REMARKS

Congressman Kanjorski, Subcommittee chair, reiterated his remarks that the terrorist attacks of 9/11, Hurricane Katrina, and the recent bond insurance crisis had made it clear to him that the federal government lacks insurance expertise. He noted that a former Treasury Department official had told him that in 2001 that only two (2) staff members worked on insurance matters. He said that today there are less that ten (10) dedicated insurance staff members and that their focus is very limited.

Chairman Kanjorski said that he has long desired consensus on insurance regulatory reform and suggested that H.R. 5840 has strong Subcommittee support. He said that he expected to advance the proposal soon.

Congresswoman Deborah Pryce (R-OH), ranking member of the Subcommittee (and co-sponsor of H.R. 5840), said that H.R. 5840 was a “common sense” policy that would create a much-needed federal voice in international insurance issues. She said that she was hopeful that legislation to create a National Association of Registered Agents and Brokers (NARAB) and a separate bill to allow risk retention groups to offer property insurance may also move through the Committee this year.

Congressman Manzullo (R-IL), said that he has seen no evidence that the insurance industry “is in such dire straits that it needs an OFC” and expressed misgivings about federal intervention in the insurance industry via an OFC or an OII. Later during his questioning, he said that Rep. Kennedy was the only witness that “gets it.”

Several other members of the Subcommittee gave opening statements, with a few specifically recommending that the Committee consider the NARAB II bill.

PANEL ONE: GOVERNMENT WITNESSES

Jeremiah Norton, Deputy Assistant Secretary, U.S. Department of the Treasury, said

  • the current U.S. regulatory environment makes coordination on international issues difficult
  • the federal government needs to pay immediate attention to reinsurance collateral and Solvency II issues
  • a 2008 Treasury Blueprint had recommended an OII-like mechanism as an immediate step to reform insurance regulation

Insurance Director Michael McRaith (IL), representing the NAIC, said

  • state insurance regulation serves as the “gold standard” for other countries
  • insurance regulators supervise 36 percent of the world’s insurance markets
  • the NAIC looks forward to partnering with the OII
  • NAIC informational databases could be manipulated to provide thousands of insurance reports for federal use
  • additional work was needed on H.R. 5840 to clarify a definition of international agreements and to specifically exclude “the business of insurance” from the OII’s jurisdiction

Representative Brian Kennedy (RI), representing NCOIL, said

  • state legislators—by statute—had shaped the “robust insurance market that exists today”
  • NCOIL could not get past the lack of any state legislative presence in H.R. 5840
  • “NCOIL believes that giving the NAIC a primary role in the Office of Insurance Information (OII) allows ‘the tail to wag the dog’”
  • the scope of public policy to be considered by an OII could be interpreted very broadly to include “issues that generally are regarded as domestic policy”
  • the creation of an OII would provide a framework for Congress to authorize an OFC and create an Office of National Insurance (ONI)

PANEL TWO: PRIVATE WITNESSES

(IN FAVOR OF H.R. 5840)

Neal Wolin, President/COO, Property and Casualty Operations, The Hartford Financial Services Group, representing AIA, said

  • the U.S. government “needs a designated voice on insurance matters” in dealing with international insurance policy
  • that one voice had been missing in all of the Committee’s past insurance deliberations—an “accredited insurance witness” to offer objective information on behalf of the federal government

Stephen Rahn, Vice President and Associate General Counsel, Lincoln Financial Group, representing ACLI, said

  • an OII would benefit Congress by “facilitating the handling of international insurance matters and provid[ing] a means for effectively involving the insurance industry as national policy decisions are made”
  • the ACLI had specific concerns regarding the OII’s authority to collect nonpublic data, the prominence of the NAIC, and whether it would be appropriate to include a member of the Federal Trade Commission (FTC) in the OII’s Advisory Group

Tracey Laws, Senior Vice President and General Counsel of RAA, said

  • U.S. reinsurers are adversely impacted by the lack of a U.S. federal voice in international policy discussions, and she cited Solvency II discussions in the European Union as an example of U.S. reinsurers being disadvantaged in EU deliberations
  • expressed RAA concerns with the scope and process of H.R. 5840’s preemption section—including that the preemption of state laws should be expanded to address all international policy, not just policy involved in international agreements, and that the preemption process was too extended and should not include broad provisions for the OII to stay a preemption.

(NO POSITION ON H.R. 5840)

David Sampson, President and Chief Executive Officer of PCI, said

  • many PCI member companies had significant concerns with the scope of the proposed OII, the data collection procedures and the NAIC, and the power of preemption
  • that several companies were concerned that OII represented the “leading edge of a comprehensive federal regulatory body”
  • the OII should only collect data when it has a clear reason to collect the information and should do so in a cost-effective manner for companies
  • he was concerned that the federal government may be able to circumvent the McCarran-Ferguson Act by international agreement and that preemption should only happen by legislation, not by regulation.

Please feel free to contact me at 202-220-3014 or at should you have any questions.