First Salvo Fired in New War on State Regulation

A man who for the past decade has been one of the most outspoken supporters of federal insurance regulation in Congress, Rep. Ed Royce (R-Calif.), has fired the first salvo in what may be a renewed war on state regulation of insurance. Rep. Royce has launched a broadside against the National Association of Insurance Commissioners (NAIC). He said he intends to request a hearing to investigate the NAIC and its role in the insurance marketplace, which he said has gone far beyond what it has the legal authority to do.

A top Republican on the House Financial Services Committee, Royce said the NAIC has acted beyond its self-described role as a standard-setting organization and taken on a regulatory role, both in the United States and on the international stage. While the NAIC maintains it is a “trade association made up of regulators,” Royce contends the organization “imposes its will on companies and states through its accreditation standards while representing the U.S. on an international basis on rules it has no authority to enforce on a universal basis.” An NAIC spokesperson said the association had no comment at this time.

Royce was a prime proponent of creating the Federal Insurance Office (FIO) and tasking it with doing a study on the “benefits” — but not the disadvantages — of federal insurance regulation. Royce was also an author of the ill-fated so-called “optional” federal charter for insurers and producers. Prominent among Rep. Royce’s campaign contributors have been those at the forefront of the decades-long campaign to engineer a federal insurance takeover.

What It Means to Agents: The timing of this is not a coincidence. Very shortly, the much-delayed FIO study of insurance regulation, which PIA has maintained all along may be biased in favor of federal regulation, will be released. It may recommend some measure of federalization — unlike the recent Government Accountability Office (GAO) study, which praised our state-based insurance regulatory system for protecting markets, the insurance industry and policyholders during the financial crisis.

Attacking the NAIC and holding a congressional hearing could be part of a smear campaign timed to coincide with the release of a critical FIO report and recommendation. Royce said he sees the release of the FIO report “as a watershed moment for future regulation” of the insurance industry.

Make no mistake: This is very important to Main Street insurance agents. This is another attempt to shift to a federal model, to benefit a few big players. The “uniformity” that federal advocates tout could result in there being far fewer insurance companies, offering fewer choices to consumers, through fewer independent insurance agents. In addition, every state’s insurance premium tax could be at risk of being usurped by the federal government.

This battle has been fought many times before, and the state system has prevailed. It will prevail again. PIA remains steadfast in support of our state-based system of insurance regulation.