PIA National reacted instantly to last week’s House passage of the CHOICE Act. It’s the reform of the Wall Street reforming Dodd-Frank Act. The story following this one looks at the CHOICE Act in more detail.
The concern of PIA National — says association Executive Vice President & CEO Mike Becker — is not the CHOICE Act as much as it is the Office of the Independent Insurance Advocate (IIA) it places within the U.S. Department of the Treasury.
That office replaces the controversial and poorly executed Federal Insurance Office (FIO). The person running the IIA office will be appointed by the president for a six-year term and then ratified by the Senate.
“The CHOICE Act is designed to roll back the regulatory overreach of the Dodd-Frank Act. Unfortunately, it also contains a provision that would create a new, expansive and unnecessary federal insurance bureaucracy. The Independent Insurance Advocate could quickly become a federal insurance czar with no supervision, positioned to usurp our strong and effective system of state insurance regulation. It runs counter to the purpose of shrinking the federal footprint,” Becker said.
PIA National’s Vice President of Government Regulations Jon Gentile agreed it is a definite overreach.
“If one were to draft a proposal to extend the reach of the federal government over the insurance industry, this provision of the CHOICE Act would fit the bill. It’s disappointing and frankly inexplicable for the CHOICE Act, which removes power from Washington in so many ways, to be used to increase the federal role over insurance,” Gentile said.
PIA National testified before the House Committee on Financial Services before the CHOICE Act was passed and noted these problems with the bill’s language. The testimony began with a defense of the state regulation of insurance.
“State regulation has served the insurance industry and consumers well for over one hundred years. Any attempt to increase federal regulation of insurance is inappropriate and the intervention of federal bureaucrats with little knowledge of their needs would negatively impact policyholders,” the written testimony noted.
These are the issues PIA had with the bill as it is constructed:
• Senate-confirmed term: This elevates the office focusing on insurance to an inappropriately high degree in the context of our already strong system of state insurance regulation.
• Separate office budget: The latest discussion draft provides the Advocate’s office with its own budget in the president’s budget request. The bill also includes language allowing the Secretary of Treasury to provide the Advocate with such services, funds, facilities, and other support services as the Advocate requests and the Secretary approves, so a separate budget isn’t necessary.
• Permission for Advocate to hire employees: Attorneys, analysts, economists, and other employees can be hired as may be deemed necessary. This provision plants the seeds for the bureaucratic overgrowth of an unnecessary, and large, federal office.
• Prohibition on Secretary of the Treasury taking action: It will delay or prevent the issuance of any rule or the promulgation of any regulation by the Independent Insurance Advocate and prohibits the Treasury Secretary from intervening “in any matter or proceeding before the Independent Insurance Advocate, unless otherwise specifically provided by law.”
In the testimony, PIA National said, “We are struck by how powerful this position will be. We also question what regulations, rules, or proceedings the Advocate’s office will issue or supervise if this provision is not intended to create an office meant to grow into a regulatory bureaucracy.”
• Authority to observe all aspects of insurance industry: The Advocate can then identify issues or gaps in the regulation of insurers; this authority has historically been delegated to states in accordance with the existing framework of state insurance regulation.
• Scope of office: The latest discussion draft states that its scope of authority will include all insurance lines except for health insurance, long-term care insurance, and crop insurance. The National Flood Insurance Program (NFIP) is conspicuously absent from that list. This list of exceptions may open the door to allow the Advocate’s office to administer the NFIP, a change that PIA National would oppose.
• Administration of Terrorism Risk Insurance Act (TRIA) program: The TRIA program was restructured to be overseen by the FIO in Dodd-Frank Act. The TRIA program functioned well from 2002-2010 without the FIO’s involvement and could function again without the involvement of this new office.
• Administration and implementation of the National Association of Registered Agents and Brokers (NARAB): FIO already seems to have taken the authority for administering the implementation of the NARAB, a power with which it was never provided. In fact, we would support new language specifically stating that the Advocate’s office will not administer NARAB. If the goal is to avoid a Washington-centric approach, addressing these issues would slow the momentum of the FIO/Advocate’s office in the regulation of insurance.
At the time, this story is being written on Sunday afternoon, June 11, just one insurer has spoken out on the CHOICE Act. To no one’s surprise it’s MetLife and the voice is provided by MetLife Chairman and CEO Steven Kandarian. He supports the CHOICE Act and ripped the Dodd-Frank Act and — in particular — its establishment of the Financial Stability Oversight Council (FSOC) and the way that body designated non-bank insurance companies as systemically important financial institutions (FSOC) in an arbitrary manner.
“Singling out a few large insurance companies for redundant regulation harms competition, leads to higher prices and less financial protection for consumers, and fails to make the financial system safer. The life insurance industry is already subject to a strong and proven state regulatory system with capital rules designed to address risks associated with the insurance business model,” Kandarian said.
It also must be noted that MetLife got a SIFI designation from the FSOC and was thrilled when a federal judge supported the company’s lawsuit over the designation and rejected it.
“If insurance companies engage in activities that pose a risk to the financial system, primary regulators should target those activities directly. An activities-based approach is a better way to address systemic risk. Regulating companies appropriately — not excessively – is critical to fueling robust economic growth and creating jobs,” Kandarian added.
Source links: PIA National, Insurance Business America