Congressmen Bean and Royce Push for Insurance Regulatory Reform; National Insurance Consumer Protection Act Fact Sheet

Apr 2, 2009

Bipartisan National Insurance Consumer Protection Act is vital in wake of AIG meltdown

Washington, D.C. – Citing the meltdown of insurance giant AIG and the broad crisis in the nation’s financial system as proof of the vital need for regulatory reform, Congresswoman Melissa Bean (D-IL-08) and Congressman Ed Royce (R-CA-40) introduced the National Insurance Consumer Protection Act on April 2, 2009 to create a robust federal regulator for insurance to act as an alternative to the antiquated, non-uniform system of state insurance regulators currently in operation.

“The events of 2008 show us that insurance reg reform can no longer be postponed – it is needed now,” Bean said. “This bill will provide consumer protection and choice while eliminating barriers to industry competitiveness in the global market.”

“Never before has the federal government been so invested in an industry it has no regulatory authority over. Leaving the business of insurance regulation solely to the various state insurance commissioners, while the federal government provides taxpayer-funded assistance is simply irresponsible.” Royce said.

The National Insurance Consumer Protection Act (NICPA) establishes a national system of regulation and supervision for nationally registered insurers, agencies, and producers (agents and brokers) to monitor the systemic risk to the economy from the insurance market, enhance consumer protection and choice, and reduce inefficient regulatory complexity that puts U.S. firms at a competitive disadvantage.  States would maintain responsibility for regulating state-licensed insurers, agencies and producers.

Major points of the bill include:

  • Consumer protections. By creating a world-class regulator, consumers working with a nationally chartered insurer benefit from best practices in consumer protection. The bill directly implements the model laws propagated by the National Association of Insurance Commissioners covering consumer protection. A single nationwide telephone number will connect consumers with problems to their local federal or state insurance regulator. The Office of National Insurance will have a physical office and staff in every state through its Division of Consumer Affairs.
  • Consumer choice. By eliminating outdated price controls insurance customers across the country will have products more closely reflecting actuarially sound prices available to them. (Illinois, one of the only states without price controls, enjoys lower-than-average insurance rates as insurers compete for customers.) By providing an alternative to the antiquated patchwork of state regulators, nationally chartered insurers will be able to bring new products to market more quickly, providing greater consumer options.
  • Risk reduction. NICPA reflects the importance of monitoring the insurance sector for “systemic threats” to the economy and anticipates the need to coordinate with a systemic risk regulator, likely to be created by Congress. The bill calls on this regulator to gather financial data from insurers and affiliates within holding companies, and to consult with the Office of National Insurance to determine the most effective form of functional regulation for systemically important institutions.  Under these provisions, AIG’s insurance subsidiaries – in addition to its holding companies and non-insurance subsidiaries, like the financial products division – would have been overseen by ONI.

Insurance reg reform has been recommended in numerous bipartisan reports on financial services modernization, such as the Schumer/Bloomberg report on United States competitiveness, the Treasury Department’s Blueprint for a Modernized Financial Regulatory Structure, and the report by the U.S. Chamber of Commerce’s bipartisan commission on capital market competitiveness.  Additionally, Timothy Geithner and Federal Reserve Chairman Ben Bernanke have recently noted the systemic gap exploited by AIG and called for a review of our insurance regulations as a critical component of the broad regulatory reform needed to prevent another future collapse of the financial system as occurred in 2008.  During a Senate Budget Committee hearing on March 3 Bernanke stated, “[AIG] made huge numbers of irresponsible bets, took huge losses, there was no regulatory oversight because there was a gap in the system.”  Just last week during a House Financial Services Committee hearing Geithner said, “What we need is better, smarter, tougher regulation, because we’ve seen the costs of these weaknesses and gaps are catastrophic to the system as a whole.”

“Beyond the inefficiencies created by the fragmented state-based system overseeing insurance, systemic gaps have revealed themselves in recent months.  Until these gaps are filled, the threat of another AIG remains.” Royce said. “Our legislation will go a long way toward filling those gaps.”

“The complexity of the modern financial system of insurance conglomerates and holding companies cannot be adequately overseen by the state-based system, as shown by recent events,” Bean said. “Insurance reg reform that protects consumers and investors must be included as Congress moves ahead on comprehensive reg reform of the financial services sector.”

Click here to read a NICPA fact sheet

Click here to read the full text of the bill


Congresswoman MELISSA BEAN (IL-08) and Congressman ED ROYCE (CA-40)




National Regulator

Establishes a parallel, national system of regulation and supervision for insurers, insurance agencies, and insurance producers (agents and brokers), similar to the dual banking system. Insurers, agencies and producers can elect national or state regulation, charters and licenses. States would maintain responsibility of regulating state licensed insurers, agencies and producers.

The Office of National Insurance

An independent Office of National Insurance (ONI) is created within the Department of the Treasury, similar to the Office of the Comptroller of the Currency (OCC), and its Commissioner would be appointed by the President for a five-year term, subject to th advice and consent of the Senate.

National Life Insurers and National Property and Casualty Insurers

NICPA authorizes the National Insurance Commissioner to issue charters for national insurers for life insurance, property and casualty, and reinsurance. The underwriting of life insurance and P/C insurance is separated, but a holding company is permitted to own both a National Life Insurer and a National P/C Insurer.

National Agencies and National Insurance Producers

NICPA authorizes the chartering and licensing of national insurance agencies and the licensing of national insurance producers. A national agency would be authorized to sell insurance for any nationally chartered or State licensed insurer. A nationally licensed insurance producer could sell insurance, including surplus lines of insurance, in any State on behalf of any national insurer or a state insurer. Additionally, a State licensed insurance producer could sell insurance on behalf of any insurer, including national insurers, operating within the State in which the producer holds a license.

Systemic risk

All insurance commissioners (state and national) would be required to share information with a Systemic Risk Regulator, as defined by the Administration. The Systemic Risk Regulator shall make corrective action recommendations to the Commissioner or state commissioner to take action to mitigate or avoid actions taken by an insurer or affiliate that would have serious adverse effects on economic conditions and financial stability. If action is not taken, the Systemic Risk Regulator with approval of the Coordinating Council for Financial Regulators to circumvent the insurance regulator in emergency circumstances. Finally, if the systemic risk regulator in consultation with the National Insurance Commissioner determines an insurer is systemically important they can require the insurer to be nationally chartered.

Coordinating Council for Financial Regulators

Establishes a Coordinating National Council for Financial Regulators based on an expanded version of the President’s Working Group for Capital Markets. The council shall serve as a forum for financial regulators to collectively identify and consider issues related to the health and competitiveness of the financial services industry. Chaired by the Secretary of the Treasury, it shall also include the Commissioner of National Insurance and the heads of the Federal Reserve, SEC, CFTC, OTS, FDIC the Comptroller the Currency, and three state regulators appointed by the President.

Conversions Between State and National Status

State licensed insurers would be free to convert to a national charter. Likewise, national insurers would be free to convert to a State charter, subject to approval by the Commissioner.

Applicable State Law

The activities and operations of nationally chartered and licensed entities would be primarily subject to federal law. However, national insurers and nationally licensed insurance producers would be subject to certain categories of State law. These categories include: (1) State tax laws; (2) State unclaimed property and escheat laws; (3) State laws related to participation in assigned risk plans and other mandatory residual market mechanisms that are designed to make insurance available to those unable to obtain insurance in the voluntary market; (4) State laws that provide for compulsory coverage of workers’ compensation or motor vehicle insurance; and (5) Participation in state guaranty funds.

Regulatory and Supervisory Powers

The Commissioner has a comprehensive set of supervisory and regulatory powers.  National insurers are subject to examinations every two years, and national insurance agencies and national insurance producers are subject to examination in response to a complaint or evidence of a violation of the law or regulations. National insurers, their holding companies, and fellow subsidiaries of their holding companies are subject to risk-based capital standards, investment standards, and asset and liability valuation requirements that are based upon model laws and regulations developed by the National Association of Insurance Commissioners (NAIC). National insurers are subject to an independent audit committee requirement, limitations on dividends, and limitations on transactions with affiliates.

Enforcement Powers

The Commissioner is given enforcement powers patterned after those available to the federal banking agencies, permitting him/her to: (1) revoke or suspend a charter or license; (2) issue a cease and desist order, including an order that mandates affirmative actions, such as the sale of assets or the hiring of new management; (3) remove or suspend individual officers, directors, controlling shareholders, agents and consultants; and (4) impose civil fines of up to $1 million a day for violations of law or regulations or improper conduct.

Consumer Protection

NICPA establishes a Division of Consumer Affairs within the Office of National Insurance. The Division of Consumer Affairs shall establish an office of Consumer Affairs in each state with a direct phone number, and shall establish a national toll-free telephone number and website to act upon questions and complaints. The Commissioner will issue market conduct regulations to prevent unfair methods of competition and unfair and deceptive acts and practices by all covered entities. These regulations shall implement the model laws of the National Association of Insurance Commissioners (NAIC) regarding consumer protection. The Commissioner is empowered to investigate fraudulent insurance acts, which are defined as federal crimes punishable by up to 10 years in prison.

Self-Regulatory Organizations

The Commissioner is authorized to register and oversee self-regulatory organizations for nationally chartered and licensed insurers, agencies and producers. Key powers of the Commissioner, such as chartering and merger and conversion determinations, may not be delegated to a self-regulatory organization.

Guaranty Fund

NICPA establishes a National Insurance Guaranty Corporation, which will assume obligations to policyholders, up to limits based on those set by NAIC model laws, when a national insurer is placed into receivership. The corporation shall be funded by assessments on national insurers, based on line of business as needed post action.  National insurers will be required to participate in state guaranty associations for a line of insurance in each State in which such insurer is doing such business. The Director of the National Insurance Guaranty Corporation shall submit a report to Congress within two years on the effectiveness of these provisions.

Receiverships for Rehabilitation or Liquidation

The Commissioner may place a national insurer into receivership for rehabilitation or liquidation for a number of circumstances, including the insolvency of a national insurer.


National Insurance Consumer Protection Act