The National Conference of Insurance Legislators (NCOIL) issued a statement terming Treasury Secretary Henry Paulson’s insurance proposals “ruinous.”

NCOIL’s statement said that although Paulson “may not be fiddling while Rome burns, one wonders if in a Blueprint for a Modernized Financial Regulatory Structure, he is not fanning the flames.” The statement went on to say that while ignoring the shortcomings of the current federal system, a system that in no small part led to the current subprime debacle, Secretary Paulson in the Blueprint “criticizes and minimizes successful state insurance regulatory modernization and proposes the dubious solution of federal control,” including that of an optional federal charter (OFC).

“It might serve Congress well to look past the likely ruinous proposals of Secretary Paulson, to the very real problems inherent in federal oversight, rather than to speculate about ‘potential inefficiencies’ in the present state-based system,” noted NCOIL President Representative Brian Patrick Kennedy (RI).

NCOIL is an organization of state legislators whose main area of public policy interest is insurance legislation and regulation. Most legislators active in NCOIL either chair or are members of the committees responsible for insurance legislation in their respective state houses across the country.

Subprime Debacle Was Federal Failing

Rep. Kennedy said, “The report draws state insurance regulation — which is constantly developing and responding to its healthy competitive markets to meet business and consumer needs — into the fray along with less regulated and less accountable financial services sectors, such as banks, thrifts, and securities that are presently managed by the federal government.”

He noted, “The Feds’ most recent subprime fiasco, as well as FEMA’s evidenced shortcomings in Hurricane Katrina, and the 1990s savings and loan crisis do not encourage state legislators to greet federal intervention with open arms.”

The NCOIL president added:  “If the goal of the report is to ‘effectively promote stable and resilient markets and a more competitive financial services industry,’ it simply misses its mark by ignoring dynamic state systems that are ever-evolving to serve the insurance market. One such example is an Interstate Insurance Product Regulation Compact (IIPRC) that provides speed-to-market for life insurance products. By using the Compact mechanism, life insurance companies can submit one product filing for approval and offer that product in all member states within a little more than a month.”

Treasury Plan Will Be Forgotten

Rep. Kennedy emphasized that while state legislators and regulators acknowledge the need to respond to an increasingly global market and are working together to do so, it should not be at the detriment to state citizens. He said, “The proposed structures to configure a federally regulated insurance system touted by the Blueprint, including an OFC with a 1-800 number in Washington — cannot replace over 135 years of experience and expertise developed and implemented at the state level. They cannot provide the consumer protections afforded by state legislators and regulators who are close to constituents both ideologically and geographically. What they will accomplish, however, is to weaken response to consumer complaints and promote regulatory confusion.”

Kennedy said he also does not believe assurances that the states’ premium taxes would not be used to fund a federal regulatory structure. “In the proposal...they're talking about 'the states aren't going to lose any of their dollars,' which I don’t believe. When you're setting up a huge bureaucracy like that, something has to give," he said.

On November 20, 2007, NCOIL submitted a letter to Secretary Paulson that outlined benefits of the state-based regulatory system in order to counteract the Treasury’s seeming propensity to promote an OFC.

Kennedy said the only silver lining to the proposal is that a new administration will take office in 10 months. “We will have a new Treasury secretary and all of this will be forgotten,” he said.

Treasury Criticizes While States Work to Modernize (NCOIL 4/3/08)

This article originally appeared in the April 2008 issue of PIA Connection.