Reaching for Regulatory Reform’s Mango Bajito

Over the past few months, supporters of an optional federal charter (OFC) have been making a strong push to gain support for legislation that would create an Office of National Insurance to provide for an OFC. Because of the efforts of the pro-OFC forces, it has become increasingly important for the Big “I” to continue to make its ideas for regulatory reform and its opposition to an OFC heard.

Recently, the Big “I” had the opportunity to provide members of Congress with its perspective on the general issue of insurance regulatory reform. In early October, Alex Soto, Big “I” immediate past-chair and president of Miami, Fla.-based InSource, testified on behalf of the Big “I” before a hearing of the House Committee on Financial Services Subcommittee on Capital Markets, Insurance and Government- Sponsored Enterprises. The hearing was entitled “The Need for Insurance Regulatory Reform.”

In his testimony, Soto expressed the association’s longtime support for the state system of insurance regulation but acknowledged that there are inefficiencies that necessitate Congressional reform. He outlined IIABA’s ideas on how targeted federal legislation could reform the state regulatory system. Soto provided two overarching principles to guide such efforts: First, Congress should attempt to fix only those components of the state system that are broken. Second, it should not take any action that jeopardizes the protection of the insurance consumer, which is the fundamental objective of insurance regulation and of paramount importance to the Big “I” and its members.

Soto reiterated Big “I” support for H.R. 1065, the Nonadmitted and Reinsurance Reform Act of 2007, introduced by Reps. Dennis Moore (D-Kan.) and Ginny Brown-Waite (R-Fla). He pointed out that this example of targeted legislation has already passed in the House of Representatives by voice vote and has near-unanimous industry support.

Soto stated that this model—targeted federal legislation to modernize state regulation—can be used to reform other aspects of the insurance market. Soto specifically mentioned that targeted federal legislation could address the problems independent agents and brokers face in the licensing process.

“The current licensing system is cumbersome, confusing, burdensome and time-consuming, and it hinders the ability of agents and brokers to responsively address the needs of insurance purchasers,” Soto said. “Targeted federal legislation that would ensure a completely reciprocal and/or uniform licensing process for agents would provide a more competitive insurance market and improve the state-based system of insurance.”

Soto concluded the hearing by stating that Congress should consider targeted reform of the current system and go after the mango bajito (low-hanging fruit) and not down the misguided road of an OFC.

Patrick Royal ( patrick.royal@iiaba.net) is Big “I” director of public affairs.

Taking an Anti-OFC Stand

During his testimony before the House Committee on Financial Services Subcommittee on Capital Markets, Insurance and Government- Sponsored Enterprises, Alex Soto reiterated the association’s strong opposition to OFC proposals. He provided a compelling anecdote about his experience in Florida after Hurricane Andrew on how a federal regulator would not have responded as quickly and efficiently as his local regulators.

Soto added that creating an optional federal regulator is at odds with one of the primary goals of insurance regulation, which is consumer protection. He pointed out that insurance agents and brokers serve on the front lines and deal with customers on a face-to-face basis, and the proposed OFC legislation, by establishing a distant federal regulator, would lead to additional regulatory burdens on agents and would negatively impact their abilities to represent those customers.