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Congress Considers Insurance Office Bill

Members of the United States Congress have spent time throughout the year working on drafts of a bill commissioning a new Federal Insurance Office. In October, the House of Representatives released its latest version of such a measure. Under the specifics of the House bill, the proposed Federal Insurance Office would have substantial authority to consolidate insurance regulation now reserved to the states. The office would work on international insurance issues, and would also serve to monitor the domestic insurance industry, watching for threats from the industry to the national financial system.

Overview of the Proposed Federal Insurance Office

The jurisdiction of the proposed Federal Insurance Office would extend to all insurance types, with the exception of health insurance. It would be an office created under the auspices of the U.S. Treasury Department, with its director appointed by the Treasury Secretary.

The current Federal Insurance Office Act circulating around members of the House was drafted by Representative Paul Kanjorski (D-Pa.), who is also the chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises. The overarching goal informing the agenda and authority of the proposed Federal Insurance Office would be to interact meaningfully with state-level insurance regulators in an effort to collect pertinent data from them and from providers in the insurance industry on an as-needed basis. As part of bill language in its current form, smaller insurance providers may be exempted from mandated Office data collection efforts, presumably in deference to their smaller size and relative inability to provide the human labor necessary to keep track of such data.

Kanjorski feels that a Federal Insurance Office is something the federal government could utilize to increase its own knowledge of insurance industry practices and workings. He cites the AIG collapse and its extensive aftermath as an example behind his reasoning. He says the creation of such an office at the federal level would give national policymakers the access they need to pertinent information which could help them to more effectively respond to crises and work to maintain a more stable national financial system [1].

The current draft of the Federal Insurance Office Act is actually a revised form of a measure first put together by a bipartisan group in early 2009. That measure had the support of the Obama administration. The proposed Federal Insurance Office would also assist in administrative duties related to the Treasury Department's Terrorism Insurance Program; coordinate U.S. government international insurance policy; work directly with top officials at the state level regarding important issues of national and international import; and advise the Treasury Secretary on these issues.

Industry Reaction Mixed to Possible Federal Expansion of Insurance Jurisdiction

One indirect but obvious effect of the passage of the Federal Insurance Office Act would be a much greater consolidation of federal power over the national insurance industry, including car insurance providers, at the expense of state governments who currently hold a great deal of sway in most matters of pertinence to insurance policy. The Obama administration has come out in favor of such consolidation of power at the federal level: that much was made clear this summer by its direct participation in the fashioning of language describing the proposed powers of such an office [2], but insurance industry leaders and groups affiliated with the industry are mixed in their feelings about the proposed measure.

The Automotive Service Association (ASA), for one, has come out strongly in favor of legislation promoting greater federal control over insurance regulation. The group has lobbied heavily in Washington, D.C., in favor of such changes in regulatory control. They feel that collision repair shops would increase from a federal consolidation of insurance regulation because national consumer advocacy groups-which ASA thinks share a lot in common with auto shops in their views on insurance issues-are more active on the national level. They feel that increased federal involvement in the insurance industry will help to indirectly promote their cause [2].

The ASA may be on to something, as consumer advocacy groups like the Consumer Federation of America and the Center for Economic Justice have gotten involved in lobbying themselves. The Consumer Federation of America-which is also heavily involved in lobbying to get Michigan's FAIR initiative on the November 2010 ballot-and the Center for Economic Justice joined forces in a letter drafted this summer and sent to leaders in the House and Senate, urging them to push legislation mandating greater federal control and oversight of the insurance industry.

But not all groups representing auto collision shops have come out in favor of increased federal regulation of the insurance industry. The Society of Collision Repair Specialists (SCRS) appears to be leaning toward siding against the measure, because the association's leaders tend to prefer individual state oversight. They feel it gives repair shop owners more of a chance for face-to-face encounters with policymakers than they would ever have if power was consolidated at the federal level. The Alliance of Automotive Service Providers (AASP) usually is in favor of state regulation rather than federal-level control simply for economic reasons associated with the hardship of trying to lobby at the federal level [2].

Insurance industry leaders are also divided on the issue of federal regulation of the insurance industry. The idea lends itself more naturally to some industries than to others, and it may pose more of a threat to some than to others as well. For example, with European insurance companies making plans to enter U.S. markets more extensively in the coming years, they would be less inclined to do so with 50 different sets of rules for car insurance industry regulation [2]. The transition would be easier and less expensive with federal regulation in place, which could allow them to sell policies more competitively, in turn cutting into the possible profitability of domestic competitors who would have to adjust in order to remain a viable alternative.

As work continues behind the scenes on Capital Hill toward a possible law implementing the creation of a Federal Insurance Office, it is evident there is a great deal at stake for the various groups with differing interests in the outcome of the proposed legislation. Regardless of political orientation or personal belief in the matter, it should be clear to anyone observing the unfolding situation that the concept of increased federal control over the insurance industry is one the Democratic-controlled White House and Congress are both interested in exploring, and that such exploration will probably continue in the months to come. Whether this specific incarnation of a Federal Insurance Office Act is ever voted into law still remains to be seen; it is premature at this point to accurately gauge legislative support of such a measure.

Even so, the possibility of increased federal regulatory control over the industry, including auto insurance providers in the U.S., brings a host of possible outcomes and side effects to the industry. The exact nature of those side effects will certainly be more evident as time goes by, if and when such legislation ever reaches the Congressional floor and is voted into law.

[1] Originally posted on Retrieved 2009-12-07.
[2] Retrieved 2009-12-07.



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