A Balanced Approach to Insurance Regulation Reform
Myers, Robert H., Jr., Risk Management
THE MOOD IN THE NATION'S capital is one of eager anticipation. For the first time in 12 years, the Democratic Party controls the White House and both houses of Congress. The Clinton ad-ministration has promised an end to "legislative gridlock." As a result, the 103rd Congress will likely be the source of more legislation than any Congress in recent memory.
While insurance regulation has been on the agenda of the past several Congresses, there has really been only a modest opportunity for the passage of substantive legislation. Now, however, insurance regulatory reform legislation is a real possibility. The foundation for legislation has been laid in prior congressional sessions. Studies have been prepared by the Treasury, the Government Accounting Office, the Congressional Research Service, the Joint Committee on Taxation, and others. Hearings have been held, as well, by a variety of committees on a multitude of issues in both the House and the Senate.
While there have been numerous proposals for reform, there is one proposal that dominates all others. That is the Federal Insurance Solvency Act (H.R.4900) sponsored by Rep. John Dingell, D-Mich. Mr. Dingell is not only the chairman of one of the most powerful committees in the House, the Energy and Commerce Committee, he is also chairman of its Oversight and Investigations Subcommittee. This position provides him with the capability not only to push legislation that he may favor but also to investigate and "encourage" a non-responsive industry to see the wisdom in dealing with his committee and its staff.
But when it is the future of insurance regulation that is on the line, all alternatives, not just those promoting federal regulation, must be objectively explored to the fullest extent possible. A balanced regulatory approach may be the least favored alternative with the most active participants in the legislative process, namely, insurers, regulators, agents, self-insurers and others. However, from the perspective of policyholders, who should arguably be kept highest on the legislators' priority list, it may be the safest and least expensive alternative available.
THE LEGLSLATIVE PROCESS
H.R.4900 is presently being rewritten by the committee staff for introduction into the 103rd Congress. It represents a comprehensive effort to devise a federal answer to the complex problems presented by the current state-based insurance regulatory system. The Federal Insurance Solvency Act, as its name indicates, was initially stimulated by the desire to protect insurance policyholders from insolvency by insurance carriers. While H.R.4900 addresses insurance industry solvency and seeks to provide a federal solution, the bill has become the vehicle for the imposition of a federal solution to a variety of important insurance regulatory problems that are only distantly, if at all, related to solvency.
As currently written, H.R.4900 would: establish rate, form and market conduct preemption from state law for "highly capitalized insurers"; permit "market withdrawal," even over the objection of state regulators, to overcome capital lock-in statutes; permit qualified reinsurers to operate in 50 states and preempt all state laws to the contrary; and similarly preempt state laws relating to qualified surplus lines carriers and allow 50state operation. The bill would also facilitate nationwide operation by agents through the National Association of Registered Agents and Brokers and address the growing problem of accountant and actuary liability first, by requiring that accountants and actuaries be utilized and, then, by "holding them harmless" for "good faith" mistakes. H.R.4900 would similarly protect insurance agents from liability for placement with insurers that subsequently became insolvent.
These, among others, are significant regulatory problems that need to be addressed. However, it is only logical to question how these specific industry problems came to be addressed by this proposed legislation, while others remained unnoticed. …