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TMCNet:  OFC Opponents Unlikely Swayed by 'New-and-Improved' Bill

[February 12, 2009]

OFC Opponents Unlikely Swayed by 'New-and-Improved' Bill

(BestWire Services Via Acquire Media NewsEdge) It isn't yet even introduced, but early reviews would suggest consumer-focused enhancements to legislation calling for creation of a federal insurance regulator are unlikely to sway opponents of the concept.

Bill sponsors Reps. Melissa Bean, D-Ill., and Ed Royce, R-Calif. say they will be introducing their National Insurance Consumer Protection and Regulatory Modernization Act -- the successor to their earlier National Insurance Act -- shortly after the President's Day recess. Details shared thus far show the pair are including a number of new provisions geared toward enhancing consumer protections, coordinating with a "systemic risk regulator" and offering more comprehensive oversight of insurance holding companies in a bid to avoid the sorts of problems seen at American International Group Inc.

But long-time opponents of the "optional federal charter" concept -- including state regulators, consumer groups and grassroots agents and companies -- remain skeptical that the changes mark a significant improvement, even if Bean and Royce have opted no longer to use the OFC moniker.

"Based on what we have seen and heard so far, the Bean-Royce legislation is the same old tired concept, optional federal insurance regulation," said Charles Symington, senior vice president of government affairs with the Independent Insurance Agents & Brokers of America, whose 300,000 members historically have offered the most mobilized political opposition to the OFC.

Royce and Bean argued the new bill provides more uniform oversight across the United States by incorporating consumer protection model laws promulgated by the National Association of Insurance Commissioners into the newly created Office of National Insurance, in addition to enabling insurers to bring more products to consumers, fostering more competitive markets and creating a single point of contact in negotiation of insurance issues internationally. It also would create a single point of contact for consumer concerns, with a single phone number nationwide, physical offices in all 50 states and a requirement that every national insurer or insurance broker have a consumer liaison to work with the ONI's Division of Consumer Affairs.

But consumer groups continue to raise concerns about the potential for regulatory arbitrage, with Birny Birnbaum, executive director of the Center for Economic Justice, saying "a dual regulatory system in which the regulated entity gets to choose its regulator is fatally flawed."

"The failure of the dual regulatory banking system is evident from federal preemption of state efforts to deal with the subprime crisis and predatory lending," Birnbaum said. "What is particularly striking is that the bill sponsors want to create a fragmented regulatory system -- exactly the problematic fragmented regulatory framework for financial institutions that was blamed for failing to provide effective oversight of financial institutions."

For their part, the bill's framers argue that they have addressed the issue by placing the duties of the ONI within the context of the systemic risk regulator favored by the Obama administration. The new regulator would have power to compel federal regulation of systemically important institutions, would be granted oversight powers of all affiliates of a financial holding company and could determine holding companies that predominantly include insurance businesses be regulated as insurance holding companies.

Those changes provoke a range of reactions of their own. One of the originators of the OFC concept -- former American Insurance Association Chief Counsel Craig A. Berrington, now co-chairman of the insurance regulation and legislation group at Wiley Rein LLP -- said the changes strengthen the original legislation by making "even clearer that the legislation deals with systemic risk issues." However, the OFC-supporting Competitive Enterprise Institute think tank said the potential for mandatory federal regulation was troublesome.

"While it is likely that all of the largest financial entities would already choose federal oversight under any system, the language in this law creates a dangerous ambiguity," CEI policy analyst Michelle Minton said. "That ambiguity could potentially harm regulatory competition by superseding financial institutions' ability to choose which option they want."

Jimi Grande, vice president of federal and political affairs with the OFC-opposing National Association of Mutual Insurance Companies, concurred, arguing that "the majority of property/casualty insurance companies have opposed the creation of an optional federal charter and are likely to oppose the creation of a mandatory one as well. "

The Reinsurance Association of America, which likewise has been a supporter of OFC, said they would need to see more details of the legislation, with President Frank Nutter noting that "it is not clear how reinsurers would be treated, since most of the overlap between state and a national regulator does not customarily apply to reinsurers (premium taxes, assigned risk plans, residual markets.)"

(By R.J. Lehmann, Washington bureau manager: raymond.lehmann@ambest.com)

Copyright ? 2009 A.M. Best Company, Inc.

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