Tags: Senate | mark-up | insurance | flood

Senate Considers Insurance Regulation and Flood Premiums

By    |   Tuesday, 11 Jun 2013 01:30 PM

On June 6, in the middle of the hearing on the so-called American Dream, the Senate Banking Committee, chaired by Tim Johnson, D-S.D., held a mark-up of S. 534, a bill to create an organization called the National Association of Registered Agents and Brokers (NARAB). This organization would provide a central entity to administer the registration of so-called "producers" for the property and casualty insurance business.

The politics within the insurance industry are so complex that it has taken over a century for the industry to figure out how to co-opt Congress into endorsing such a regulatory scheme, because the industry has historically been regulated by the states, a policy established by the McCarran-Ferguson Act of 1945. The Gramm-Leach-Bliley Act of 1999 contained a provision that NARAB would have been created if a given number of states elected to join, but this never happened.

Thus, this proposal came forth from the industry to establish NARAB once and for all. It is, in a sense, a gift from Congress to the industry, but this is a very powerful segment of the financial services industry with a lot of clout in Congress. Three years ago the industry raised its federal profile when it succeeded in creating, as part of the Dodd-Frank Act, the Federal Insurance Office to help formulate international insurance regulations and gained representation for the industry on the Financial Services Oversight Council, an unwieldy regulatory body that is supposed to identify regulatory gaps and overlaps and threats to the stability of the domestic and international financial systems.

Inclusion of the insurance industry in a "reformed" federal regulatory system was prompted by the role the bailout of AIG played in contributing to the 2008 episode of the ongoing financial crisis when a London unit of the company borrowed against the credit of the parent company in order to support a huge derivatives trading operation. Both the New York State Insurance Department and the federal Office of Thrift Supervision missed this completely, and both have lost their independent status as a result.

In 2002, Congress enacted the Terrorism Risk Insurance Act, a federal support system to keep the property and casualty industry afloat in the event of catastrophic natural disasters such as hurricanes Katrina and Rita. The life insurance industry has been campaigning for years for the enactment of an Optional Federal Charter to enable this segment of the industry to escape the burden of having to deal with myriad state regulators.

All of these developments are bringing the insurance industry closer to the federal nanny state, even as the property and casualty segment maintains that it is regulated by the states.

The purpose of a "mark-up" is for the committee to consider a draft bill and act on proposed amendments, if any, then vote to report the bill out of the committee so that it can be taken up on the Senate floor. A hearing can be interrupted when a quorum of senators is present, so that there is a recess of the hearing while the committee goes into "Executive Session" for the purpose of transacting its business. These mark-ups usually go smoothly, because they are rehearsed in advance by the committee staff and the staffers for the individual senators who handle their Banking Committee work.

Three noteworthy issues arose during the mark-up:

1. Prohibition of federal funding. As the mark-up began, I was thinking, "OK, the industry wants this, but I sure hope the public isn't paying for it." Along came a new member of the committee, Tom Coburn, R-Okla., to put that into words, and it was agreed to with no fuss and with even Democrats stating by no means should the federal government pay for this. So far, so good.

2. Protection of states' rights. Coburn then expressed concern that states could get roped into this arrangement unwillingly, and he refused to accept assurances from sponsors on both sides that the states are unanimously behind the proposal. Coburn said, fine, then they shouldn't object to my amendment.

Chairman Johnson and Mike Johanns, R-Nebr., both stated that they would oppose the amendment. Johanns said that as a former governor, he supports the rights of states, but right across the river from Omaha, Nebr., is Council Bluffs, Iowa, and insurance agents should not have to overcome undue red tape in order to serve customers across state lines.

Surprisingly, a liberal Democrat, Jeff Merkley, D-Ore., said he would vote with Coburn.

The amendment failed, but the sponsors of the bill promised to work with Coburn to find a way to assure him that the bill would not violate the 10th Amendment, which states: "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."

The bill's proponents clearly view Coburn's objection as quaint, and they are determined not to let it hold up the bill.

3. Pending increase in flood insurance premiums. David Vitter, R-La., used the device of offering an amendment in order to gain the floor long enough to raise the issue of increases in flood insurance premiums that are slated to be imposed by the Federal Emergency Management Administration.

Under this procedure, a senator offers an amendment and then withdraws it once he has received satisfaction from the sponsors of the bill. Vitter referred to complaints by constituents that they knew premiums would be increased, but a constituent complained that instead of a modest, affordable raise, his current premium of $600 is proposed to be raised to $29,000.

Vitter warned that other constituents would be alarmed in Louisiana and other coastal states, and he extracted a commitment from Johnson to hold a hearing on this issue sometime in July.

A subcommittee of the House Financial Services Committee is scheduled to hold a hearing later this week on international insurance regulation that is likely to raise some of the same issues discussed during the mark-up of S. 534.

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On June 6, in the middle of the hearing on the so-called American Dream, the Senate Banking Committee, chaired by Tim Johnson, D-S.D., held a mark-up of S. 534, a bill to create an organization called the National Association of Registered Agents and Brokers (NARAB).
Tuesday, 11 Jun 2013 01:30 PM
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