Congress Delays Consideration of Federal Insurance Office

WASHINGTON, Sep 18, 2008 (A. M. Best via COMTEX) -- AIG | Quote | Chart | News | PowerRating -- With the shadow of the Federal Reserve's $85 billion loan package to American International Group Inc. looming over Washington, U.S. House leaders pulled back a planned vote on legislation creating a federal office to monitor insurance markets.

Initially set to be taken up on the House's Sept. 17 suspension calendar, action on the Insurance Information Act was withdrawn following concerns voiced by Rep. Jackie Speier, D-Calif., about whether the bill's proposed Treasury Department Office of Insurance Information could potentially pre-empt California's 20-year-old Proposition 103 regulatory regime.

Under the bill, H.R. 5840, the OII would be empowered to enforce international insurance agreements and would have some limited authority to pre-empt state law, but no direct regulatory powers. The office primarily would be charged with keeping track of development in all lines of insurance, except for health insurance.

At Speier's behest, the bill's final draft included provisions ensuring any preemptive power extended to the office could not override state regulation of rates, premiums, underwriting practices, coverage requirements or state antitrust law. Nonetheless, in a letter to bill sponsor Rep. Paul Kanjorski, D-Pa., the Santa Monica, Calif.-based group Consumer Watchdog asked that consideration of the bill be postponed "until the nation has had time to understand what happened to AIG and to the $85 billion we have been forced to give that company."

"There is no doubt in our mind that you could not have imagined (the AIG situation) when you wrote the bill," Consumer Watchdog's Harvey Rosenfield and Douglas Heller wrote. "But in light of the AIG bailout, we must have a much more thorough debate about the underlying issue of the federal government?s role in regulating an insurance industry that has been historically regulated by the states."

But advocates of the legislation argued that such delay was wrong-headed, and that the Fed's action with respect to AIG actually enhanced the need for greater federal expertise in insurance. Joel Wood, senior vice president of government affairs with the Council of Insurance Agents and Brokers, called the legislation "a no-brainer," noting that it had even been endorsed by the National Association of Insurance Commissioners.

"Honestly, what it looks like here is that Ralph Nader got to the fringe of the party and created havoc -- momentary havoc, I'm sure, but the kind of delay that is truly baffling," Wood said. "Chairman Kanjorski built a strong consensus around this approach, the astonishing federal intervention to save AIG dramatically underscores this wisdom, and a freshman member has upended the process on grounds that just can't be justified by fact or theory."

Under the legislation, where the new federal office finds inconsistencies between international agreements and insurance regulation, the Treasury secretary would be responsible to determine whether the measure would be pre-empted, and, in a number of circumstances, would first be required to stay the pre-emption. Congress would have authority to object to any pre-emption of a state insurance measure. The federal Administrative Procedures Act, including the option of judicial review, also would apply to the pre-emption process.

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

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