Congress Panel Schedules Insurance Law Changes
By Jim Connolly
National Underwriter News
March 14, 2005
Salt Lake City, Utah—The head of a key Congressional committee has notified state regulators the panel plans to spend the coming three months mapping changes for the insurance industry, sources said.
The letter from Rep. Michael Oxley, R-Ohio, chairman of the Financial Services Committee, was sent to the National Association of Insurance Commissioners, which is meeting here this week to do its own work on streamlining state regulation.
Rep. Oxley's letter dealing with NAIC progress in implementing changes, according to three sources, was sent with a timetable for committee work on the State Modernization and Regulatory Transparency Act. Mr. Oxley's communication could be discussed during a Commissioners Roundtable here at the spring NAIC meeting.
The timetable of work on SMART in the House Financial Services Committee would take a week-by-week approach, according to the letter. Starting April 6 through a final draft release of April 12, SMART Titles II and III, addressing insurer licensing and surplus lines, would be fine-tuned.
Work on other titles would be completed as follows: Title X and XIV, Anti-fraud and financial surveillance, from April 13-19; Title IX and XIII, reinsurance and receivership, from April 20-26; Title V and XI, life insurance and viaticals, from April 27-May 3; Title II and XII, market conduct and miscellaneous insurance, May 4-10; Title VI and VII, partnership and producer licensing, May 18-24; and, Title XVI, competitive markets, May 25-June 7.
Diane Koken, Pennsylvania insurance commissioner and NAIC president, declined to comment on whether NAIC had received a letter.
State insurance regulators are working on a variety of projects, including market conduct reforms, an interstate compact for a single point of product filing, and inclusion of components of the federal Sarbanes-Oxley Act of 2002 for corporate reporting and auditing into an NAIC Model Audit Rule.
The proposed amendments to the NAIC Model Audit Rule have opposition from state legislators and trade groups. The National Conference of Insurance Legislators, Troy N.Y., has voiced objection on both substantive and procedural grounds.
In a March 10 letter NCOIL's president, Texas Rep. Craig Eiland, D-Galveston, said that nonpublic insurers are already held to rigorous state solvency requirements and additional reporting requirements will add to the cost of doing business.
NCOIL also questioned the use of revisions to the NAIC Annual Statement instructions. In the letter, Rep. Eiland said that those revisions are automatically incorporated into the laws of states that integrate the instructions into their state law by reference through either statute or regulation.
Two trade groups—the National Association of Mutual Insurance Companies, Indianapolis, and the Property Casualty Insurers Association of America, Des Plaines, Ill.—are urging the NAIC to consider both the need for implementation of changes to the model audit rule and the addition of new costs without a clear understanding of the additional benefits that would be accrued.
The National Alliance of Life Companies, Rosemont Illinois, has also expressed a concern that the benefits postulated justify the costs.
In response, Doug Stolte, chair of the NAIC/AICPA working group, said that given the number of insolvencies and guarantee fund assessments, there was a need for stronger internal management controls.
Mr. Stolte cited a figure provided by the Property Casualty Insurers Association of America (PCI) that the cost of implementing Sarbanes-Oxley requirements would be one-tenth of a percent of an entity's revenue for the year. For a policyholder who has been through insolvency, he said, that cost might be worth having insurance with a strong company.
And, he added, if insurers can get a premium tax credit for guarantee fund assessments, then state tax payers and policyholders are really paying for these insolvencies.
Of the NCOIL letter, Mr. Stolte said that the NAIC was not given a chance to state its case for better reporting of internal controls during the recent discussion at the NCOIL spring meeting. Legislators heard one side of the story, he noted.
Mr. Stolte said the work could always be put in a statute which would be less flexible and less to the liking of insurers.
Legislators joined a number of trade groups in opposing efforts to change the Model Audit Rule of the National Association of Insurance Commissioners. And, in response, regulators working on the project reasserted the need for adapting best practices from the Sarbanes-Oxley Act of 2002 to provide another solvency tool for regulators.