When H.R. 5840, the innocuous-sounding Insurance Information Act of 2008, was introduced earlier this year, its supporters said it was simply an effort to create an information resource for members of Congress on insurance matters.
“This bill has been misleading from the outset,” said PIA National President Robert Page. “The title of the bill is a misnomer and the rhetoric of its supporters is designed to conceal what is really going on here. This piece of legislation is part of a coordinated push by advocates of federal insurance regulation to sweep away opposition and advance their agenda in a disingenuous manner.”
As the drafting process for H.R. 5840 proceeded, the Treasury Secretary’s powers were expanded, giving him authority to preempt state insurance laws, regulations and practices, not only when he says they conflict with international agreements, but also when he says they conflict with “national insurance policy” as set by the Treasury Department.
By the time that the House Capital Markets Subcommittee approved H.R. 5840 on July 9, 2008, the bill had been transformed into legislation that would enable a federal takeover of most insurance regulation:
* Under H.R. 5840, Congress grants new powers to the Secretary of the Treasury, making the Secretary the principal federal authority for domestic and international insurance issues of national interest with the power to determine which state laws, regulations and industry practices will be preempted.
* H.R. 5840 effectively guts the McCarran-Ferguson Act of 1945 and the Gramm-Leach-Bliley Act of 1999, which establish and affirm that the states are the regulators of the business of insurance.
“This is no longer a bill that is only about creating an insurance information office,” said PIA National President-elect Kenneth R. Auerbach, Esq. “The current version of this bill would effectively lay open to review and approval by the Secretary of the Treasury the laws and practices of all 55 United States jurisdictions in most matters relating to insurance.”
“People have been encouraged to read the bill more narrowly than this,” Auerbach said. “If that is the case, then PIA wants the actual language in the bill to articulate that narrowness. The current language provides the power to determine which state laws, regulations and industry practices will be preempted, without any proper legislative authority acting to do so. This is a federal power grab.”
PIA believes that consumers are best served by the current system under which the business of insurance is regulated by the states. PIA opposes federal regulation of insurance, and also opposes proposals which would create a dual regulatory system through an optional federal charter for insurers, which would essentially allow them to decide whether to be regulated by the states or the federal government.
In a speech in April to the Maine Insurance Agents Association, Auerbach said that despite the arguments advanced by advocates of federal insurance regulation, what is really underway is a competition for market share by major players.
“Federal involvement is being marketed as a way of making insurance regulation more efficient, but the subprime mortgage meltdown occurred under federal regulation,” Auerbach said. “All at the same time that the insurance industry — which is under state regulation — remained on a firm financial footing, achieving record profits and lower prices for consumers.”
“So our question is, why would it be more efficient for the one sector of financial services that has prudently conducted its business to be subsumed into a federal regulatory structure that has failed in the supervision of banking and securities?” he said.