“Although the need for greater efficiency and uniformity in state regulation is clear, federal regulation goes too far–equivalent to throwing the baby out with the bathwater,” said Thomas Ahart, president of the Alexandria, Va.-based IIAA.

Among the federal initiatives IIAA might pursue are federal minimum standards, national reciprocity or multi-state uniformity, federal incentives for states to harmonize their laws, and preemption of certain state laws.

In an interview with National Underwriter, Robert A. Rusbuldt, IIAAs chief executive officer, cited two reasons for the boards decision.

First, he said, with the introduction of legislation by U.S. Sen. Charles Schumer, D-N.Y., and the expected introduction at press time of legislation by Rep. John LaFalce, D-N.Y., there is strong momentum behind federal regulation of insurance, which is something that IIAA strongly opposes.

Second, he said, despite IIAAs opposition to federal regulation, the board recognizes that agents and insurers have legitimate problems with how they are regulated today. “The status quo is not acceptable for those doing business across state lines,” he said.

IIAA, Mr. Rusbuldt said, wants to deal with the legitimate issues faced by multistate agents and companies while recognizing that state regulation is preferable to federal regulation.

Among the issues that need to be addressed, he said, are producer licensing, rate and form filing, privacy, and consumer protection. In addition, he said federal legislation could address company licensing, transaction reviews, corporate governance, market conduct exams, audits, solvency and guaranty associations.

In some ways, Mr. Rusbuldt said, IIAA will ask Congress to do what the Kansas City, Mo.-based National Association of Insurance Commissioners has been trying to do for several years–create a national, not federal, system of regulation.

He said that even though the federal regulation proposals on the table today call for optional federal chartering, it is very doubtful that Congress will enact what the industry wants. “Anyone who thinks that the final proposal will look like what the industry has drafted has not been following the terrorism insurance legislation,” he said.

It is very likely, Mr. Rusbuldt said, that legislation will contain community reinvestment requirements, anti-redlining restrictions and consumer protection standards that the industry could not easily accept. “There is no guarantee about what any federal legislative proposal will look like after it goes through the process,” he said.

Rather than creating a federal regulatory scheme, he said, the best role for Congress to play is to bring efficiency and modernization to a state-based system.

Mr. Rusbuldt said that prior to its policy change, IIAA quietly discussed the use of federal legislative tools to help modernize state regulation with certain national companies and selected regulators, whom he did not name. “This policy change does not come out of right field,” he said. “We have been working on it for months.”

The new IIAA policy was challenged by one supporter of optional federal chartering–the Washington-based American Council of Life Insurers.

“We were somewhat surprised to see a proposal that, on its face, seems to have a much heavier federal hand in what is currently a state prerogative than any of the optional federal chartering proposals on the table today,” said Allen Caskie, ACLI's chief counsel of federal relations.

If IIAAs proposal is preemptive of state laws, he said, it will apply to all companies and limit the activities of all states. If the federal standard is not preemptive, he said, IIAA is simply creating a federal model law, which would be the same as what exists today from the NAIC and which has the same drawbacks. States, he said, would be able to make individual changes in those laws that undermine the entire uniformity objective.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, January 28, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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