A proposal to create an Office of Insurance Information (OII) within the executive branch of the federal government could prove to be a divisive issue within the insurance industry in 2009.
Industry critics of the proposal fear that the office may constitute a “back door” approach to enacting an optional federal insurance charter.
The OII was first proposed in April 2008, when Rep. Paul E. Kanjorski (D-PA) introduced H.R. 5840, the Insurance Information Act of 2008. The bill, which would create the OII within the Treasury Dept., has a bipartisan group of co-sponsors.
With the bill’s introduction, Kanjorski issued a press release stating that the insurance industry will remain regulated at a state level, but that is was necessary to establish insurance expertise within the federal government so that it could make better decisions regarding national and international insurance.
Among other things, the office would be charged with ensuring that state insurance laws and regulations conform to international agreements. In addition, the office would:
- Collect and analyze data on insurance;
- Report to Congress on the financial conditions and trends in the insurance industry;
- Advise the Secretary of the Treasury on major domestic and international issues regarding all lines other than health insurance;
- Establish federal policy on international insurance matters; and
- Establish an advisory group that would include representatives of regulators, consumer groups, and insurers.
The bill passed out of Kanjorski’s subcommittee in July, and the OII concept received the support of Sen. Christopher Dodd (D-Conn.), chairman of the Senate Committee on Banking, Housing, and Urban Affairs.
The idea of an OII seemed to be gaining momentum until mid-September, when House Speaker Nancy Pelosi (D-CA) unexpectedly removed H.R. 5840 from further consideration during 2008.
That action was taken after Rep. Jackie Speier (D-CA) questioned how the measure would affect California insurance rate regulation. (As former chairperson of the California state senate insurance committee, Speier usually favored greater regulation.)
Generally, the insurance industry is divided into two camps regarding the OII.
One camp, including organizations such as the American Insurance Association (AIA), Reinsurance Association of America (RAA), and the American Council of Life Insurers (ACLI), support the proposal unequivocally.
In September, the ACLI wrote to Treasury Secretary Henry Paulson suggesting that the Bush Administration use authority the ACLI believes it already has to establish an OII without authorization from Congress.
According to Willem O. Rijksen, AIA vice president of public affairs, “the OII will help the U.S. Treasury analyze the important role that insurance plays in the domestic economy and will provide urgently needed leadership by the U.S. in international insurance regulatory policy making and trade agreements.”
According to Rijksen, there are many recent examples that illustrate the need for insurance expertise and authority in the executive branch of the federal government, including:
- The recent extension of the Terrorism Risk Insurance Act;
- Proposals to expand the federal role in natural catastrophe insurance;
- Ongoing problems in the bond insurance marketplace;
- Trade with Mexico, excluding all cross-border provisions of insurance services under the North American Free Trade Agreement; and
- The Solvency II Directive in Europe, which is not consistent with many state-based insurance standards in the U.S..
The Reinsurance Association of America (RAA) also supports H.R. 5840 and feels an informed federal voice with the authority to establish federal policy on international issues is critical to U.S. reinsurers, who do business globally, as well as to foreign reinsurers, who play an important role in assuming risk in the U.S.
The OII’s ability to protect state regulations in international agreements is one reason the National Association of Insurance Commissioners (NAIC) supports the creation of the OII, even though it opposes a federal insurance charter.
The NAIC emphasizes that H.R. 5840 does not establish supervisory or regulatory authority over the insurance industry.
The group also claims that the bill enhances the ability of the states to exchange confidential data with the federal government. (The NAIC has been identified as the eventual provider of information and data to the OII.)
The second camp gives only lukewarm support to the creation of an OII, while voicing concern that H.R. 5840 could be just a “foot in the door” toward the creation of a federal charter and regulator.
This camp’s concerns are reinforced by some of the co-sponsors of H.R. 5840. Rep. Melissa Bean says the OII “is a vital step toward reforming our antiquated system of state insurance regulation, which puts the United States at a disadvantage in the global marketplace.”
Rep. Edward Royce, another co-sponsor adds, “I believe it would move us one step closer to establishing an optional federal charter for insurance which would provide a much needed regulatory alternative to the tangled bureaucratic web of state-based insurance regulators.”
The second camp giving only cautious support is led by the National Association of Mutual Insurance Companies (NAMIC) and the Property Casualty Insurers Association of America (PCI).
Of particular concern to NAMIC is the collection of data, such as annual financial statements and market conduct information. NAMIC does not endorse the OII collecting data from only the NAIC, due to questions concerning the confidentiality and protection of collected data.
NAMIC urges the consideration of third-party statistical agents to collect data from insurers. Statistical agents are licensed and regulated by the states to perform these types of data collection and remittance functions.
Another area of concern for NAMIC is the type of information the OII could receive, collect, analyze, or disseminate. Data held by insurers is often confidential, private, or sensitive in nature and as such, proper protections must be included that will appropriately safeguard the integrity and security of that data.
PCI would support data collection by the OII only where there is a clear and compelling reason for collecting the data, and the cost of collection does not outweigh the expected benefits. PCI suggests that all the data collected by the OII should be kept confidential and be exempt from the Freedom of Information Act.
“On the positive side, it could be helpful to have a stronger, pro-industry voice at the federal level, as well as a centralized repository of insurance expertise to guide Congress and the president,” says Rey Becker, PCI vice president for global issues and research.
“This would be particularly helpful when international issues are involved,” he adds. “However, on the negative side, earlier drafts, as well as potential amendments down the road, have been problematic.”
The National Conference of Insurance Legislators (NCOIL) questions why the NAIC is the designated provider of information and data to the OII, and NCOIL does not support preemption of state laws deemed to be inconsistent with international agreements.
Although H.R. 5840 will not be passed in 2008, it is far from dead and still has bipartisan support.
“The OII would provide a national voice to U.S. insurance interests in the global insurance marketplace,” says AIA’s Rijksen. “The U.S. is currently disadvantaged in its ability to negotiate the insurance component of international trade agreements.”
The bill’s sponsor, Rep. Kanjorski, has expressed a willingness to work with others on the language of the bill and it is likely that it will be amended during the 2009 session.
The measure stalled only because a House member who has traditionally not been friendly to the insurance industry had questions concerning specific language.
It is clear that H.R. 5840, or an equivalent, will be back in 2009, and may have a profound effect on insurance regulation in the U.S.
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