State insurance regulation threat remains alive and well
PIA believes it remains necessary to stay vigilant against measures that would expand the role of the federal government into insurance regulation.
This month, the 116th Congress was sworn into office, ushering in the first divided Congress of the Trump administration. The Democratic Party controls the U.S. House of Representatives, while the Senate remains in Republican hands.
Since the November election, there has been an assumption that the Democratic House will result in the weakening of state insurance regulation and an effort by the new Congress to federally regulate insurance. Even if that happens, it would be nothing new to PIA or its members.
It’s important to step back and take stock of the first two years of the Trump administration. In truth, even with Republican majorities in both chambers, and with the help of a Republican in the White House, the 115th Congress took steps that threatened the successful state insurance regulatory system.
Independent insurance advocate
In November 2016, PIA became the first association to publicly call for the repeal of the Federal Insurance Office (FIO). PIA National opposed the creation of the FIO from the outset and, since its creation, PIA has repeatedly sought to curtail its power.
As Congress began work on a major piece of legislation to repeal much of the Dodd-Frank law (the Financial CHOICE Act), the Republican House, under the Financial Services chairmanship of Jeb Hensarling (R-TX), inexplicably decided to try to increase the power of the FIO. It sought to do this by creating a new, supersized insurance office called the Office of the Independent Insurance Advocate, which would have vast new authority and virtually no accountability.
The office would have been Senate-confirmable and the recipient of unprecedented power for an insurance entity in the federal government. Despite PIA’s efforts, provision for this office remained in the bill when it passed the House; fortunately, it died in the Senate.
For anyone concerned about the federal government’s role in insurance regulation, however, this was an ominous start to the 115th Congress.
FIO Reform Act
PIA shifted gears by developing two pieces of legislation concerning the FIO. First was the bipartisan FIO Reform Act, introduced by Reps. Sean Duffy (R-WI) and Denny Heck (D-WA). As introduced, this bill would have meaningfully reformed the FIO by gutting its domestic authority and moving the FIO from the Treasury Department into the Department’s Office of International Affairs. The office would also have been limited to five staff members; been removed from its advisory role to the Financial Stability Oversight Council (FSOC); and would have had its subpoena authority and most of its reporting mandates eliminated. The FIO would have continued to have a role in negotiating international covered agreements, but the bill also required that state insurance commissioners be consulted and involved throughout such negotiations.
Regrettably, when this bill was considered before the House Financial Services Committee in the summer of 2018, proponents of the FIO — who appear to favor the intrusion of the federal government into insurance regulation — considerably watered down the legislation both before and during the markup. The bill was stripped of key limitations on the power of the FIO, leaving only the elimination of its subpoena authority and a moderate limitation on its power to issue reports, which, to date, it has used with impunity.
PIA was particularly concerned that the marked-up legislation may not have had as meaningful an impact because of an amendment, offered by Rep. Ed Royce (R-CA) and adopted at the mark-up, which would have empowered the Secretary of the Treasury to direct the FIO to involve itself in unspecified domestic insurance issues. PIA viewed this amendment as a poison pill, which essentially would have eviscerated the rest of the bill.
PIA helped to have introduced the FIO Abolishment Act, sponsored by Rep. Alex Mooney (R-WV), which would have fully repealed the FIO. Regrettably, it was ignored by the Republican committee leadership and did not receive consideration.
State authority and federal data security
PIA was unable to support the “Consumer Information Notification Requirement Act,” sponsored by Rep. Blaine Luetkemeyer (R-MO), which passed the House Financial Services Committee on Sept. 13, 2018.
PIA opposed this bill even though we share the goal of protecting consumers from data theft. However, we strongly believe this issue is best left to the expertise of state legislatures and state insurance commissioners, given that insurance is regulated at the state level. Insurance is state-regulated for good reason: state regulators will always have a more thorough understanding of local insurance issues than the federal government.
By preempting state authority, this bill would undermine the work already done by several states. During the House Financial Services Committee’s consideration of the bill, the Democratic Ranking Member of the Committee, Rep. Maxine Waters (D-CA), offered an amendment to strip out the section of the bill that would have allowed the preemption of state law. Incredibly, despite their stated beliefs in the empowerment of state and local authority over that of the federal government, every Republican on the committee voted down the Waters amendment, allowing the bill to later pass with the preemption provision intact.
The faulty logic of usurping state authority in this particular bill is evident by the fact that the bill mandates that insurance agencies are to be held to standards written for large banks, which PIA believes is unworkable and potentially damaging to small businesses, including independent insurance agencies.
Going forward into the new Congress
The lesson that should be learned from this experience is that, regardless of which party controls Congress, it is always necessary to stay vigilant to defeat measures that would expand the role of the federal government in the regulation of insurance. PIA will continue to stand up against either party, on any issue, that seeks to erode the successful system of state insurance regulation to the disadvantage of independent insurance agents and consumers.
Jon Gentile (jonge@pianet.org) is vice president of government relations of the National Association of Professional Insurance Agents (PIA). These opinions are the author’s own.
See also: 15 states with the most identity theft & fraud in 2018