U.S. House Financial Services Subcommittee Reviews Insurance Regulatory Oversight Policy Implications; NCOIL Predicts NIMA Issues, Center for Economic Justice Says Insurance Premiums Should Not Include Lobbying Expenses
Jul 28, 2011
Predicting that the National Association of Insurance Commissioners’ (“NAIC”) Nonadmitted Insurance Multi-State Agreement will face continued constitutional challenges about its “improper and unconstitutional delegation of authority to a regulator . . . ” Alabama State Representative and National Conference of Insurance Legislators (“NCOIL”) Treasurer Greg Wren testified today, July 28, 2011, along with other national insurance industry leaders before the U.S. House of Representatives’ House Financial Services Insurance, Housing and Community Opportunity Subcommittee at a hearing entitled “Insurance Oversight: Policy Implications for U.S. Consumers, Businesses and Jobs.”
As part of his presentation, Representative Wren officially released an NCOIL report on the status of the Surplus Lines Insurance Multi-State Compliance Compact entitled “Implementing the Dodd-Frank Act: State Activity and SLIMPACT, an NCOIL Response.” To view the report and Representative Wren’s testimony, click here.
Missouri Insurance Director John Huff, who also serves as a non-voting member of the Financial Stability Oversight Council, urged the Subcommittee to consider and recognize state-based insurance regulation in monitoring systemic risk in the determination of which non-bank institutions to designate as systemically important financial institutions. He emphasized that the nature and regulation of insurance products is fundamentally different than those of banking and securities instruments.
While NAIC President Susan Voss testified that U.S. insurance industry oversight is strong and showing signs of continued improvement, Center for Economic Justice Executive Director Birny Birnbaum decried the U.S. insurance regulatory system as one that ” . . . has limited accountability to consumers and routinely favors insurance industry interests over consumer interests.” As evidence, Mr. Birnbaum pointed to the fact that he was the lone consumer representative on today’s panel.
State regulators, he said, have a poor track record of identifying the worst market problems, which he listed as:
- Bid Rigging Associated With Contingent Compensation of Brokers
- Homeowners and Auto Insurance Redlining
- Financed Single Premium Credit Insurance Sold With Real Estate Loans
- Churning of Life Insurance Policies
- Unsuitable Sales of Annuities to Seniors
- Life Insurer Claim Settlement Practices and Retained Asset Accounts
- Unfair Underwriting and Rating Factors
The imbalance, he said, is particularly pronounced in state insurance regulatory administrative actions, such as rulemaking, enforcement and market surveillance where insurers have ” . . . virtually unlimited funds to press their views and fund research to serve their cause– funds provided by policyholders from premium payments.”
Exacerbating this are weak conflict of interest requirements governing regulators, many of whom ultimately are employed by insurers in a representative capacity, he explained.
To level the playing field and make insurance regulation more accountable to consumers, Mr. Birnbaum suggested that insurers should be prohibited from including lobbying expenses in insurance premiums. Or, alternatively, insurers should be required to obtain consumers’ opt-in affirmative agreement in order to use premium dollars for lobbying expenses. Mechanisms should also be put in place to fund independent insurance consumer advocates.
Arming regulators with insurer market performance data would be a critical tool to improve accountability, he said, adding that one of the most important actions state insurance regulators could take to improve market regulation, consumer protection and public accountability of insurers and regulators is to collect and publish detailed market performance data about individual insurers in the same way that Home Mortgage Disclosure Act data is collected and published for lenders’ market performance.
Concluding his remarks, Mr. Birnbaum reviewed issues with lender-placed insurance–also known as force-placed insurance–a subject he described as illustrative of a number of state regulatory failures, specifically in regard to the lack of collected data on sales and servicing practices of the handful of insurers writing the vast majority of this type of business.
Other witnesses are listed below, along with hyperlinks to their respective written testimonies.
- Mr. John Huff, Director, Missouri Department of Insurance, Financial Institutions, and Professional Registration
- Ms. Susan Voss, Commissioner, Iowa Insurance Division and President, National Association of Insurance Commissioners
- The Honorable Greg Wren (R-AL), Treasurer, National Conference of Insurance Legislators
- Mr. Clay Jackson, CPCU, Senior Vice President and Regional Agency Manager, BB&T Cooper Love, Jackson, Thornton & Harwell, on behalf of the Independent Insurance Agents and Brokers of America and the Council of Insurance Agents and Brokers
- Mr. Andrew Furgatch, Chairman and CEO, Magna Carta Companies, on behalf of Property Casualty Insurers Association of America and the National Association of Mutual Insurance Companies
- Ms. Leigh Ann Pusey, President and CEO, American Insurance Association, on behalf of the Financial Services Roundtable and the American Insurance Association
- Mr. Birny Birnbaum, Executive Director, Center for Economic Justice
- Ms. Letha E. Heaton, Vice President, Marketing, Admiral Insurance Company, on behalf of National Association of Professional Surplus Lines Offices, Ltd.
- Mr. Gary Hughes, Executive Vice President & General Counsel, American Council of Life Insurers
- Mr. Eric Smith, President and CEO Americas, Swiss Re, on behalf of the Reinsurance Association of America