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Federal Insurance Office Bill Passes House Committee

On December 2, a bill to create a Federal Insurance Office under the supervision of the U.S. Department of Treasury Secretary passed a vote by the House of Representatives Financial Services Committee. Members of the Committee showed their support for the measure, which has been in the works for some time now, in a voice vote. Debate on the House floor over the merits of the proposed legislation could begin as early as next week.

H.R. 2069 Bill Sees Significant Changes as Debate Continues

The measure in question is officially called the Federal Insurance Office Act, H.R. 2069. Significantly, the version of the bill receiving the approval of the Financial Services Committee contains some very different language from the one getting the blessing of the Obama administration earlier this year. Specifically, it contains language directly banning the proposed Office from having any regulatory authority over the domestic insurance industry, an authority which had been built in to the bill as it was originally written. The measure as it was approved by the Financial Services Committee also includes a ban on the Office having the power to preempt state laws regarding insurance rates, coverage mandates, antitrust laws, or industry underwriting or sales practices [1].

The changes in language have had the effect of changing the tone of the bill and the character of the Federal Insurance Office it seeks to create. The changes are also departures from key tenets endorsed by both Committee Democratic leaders and the Obama administration. The language changes were made to H.R. 2069 to help the bill gain more widespread support from state-level insurance regulators and agents, as well as smaller insurance companies [1].

In the form approved by the House Financial Services Committee, the bill also contains weaker language describing the proposed Office's power to handle negotiating international insurance agreements. Language added to the bill calls for the Office to share that power with a representative from the Office of U.S. Trade. On top of that, any agreements hammered out by the Office would only become effective after a waiting period, essentially designed to give the Congress opportunity to act, either by way of resolution endorsing the agreement or legislation condemning it. The new language greatly limits the proposed Federal Insurance Office's regulatory and diplomatic power, adding new parties for it to answer to and cutting down on the overall scope of its responsibilities.

The measure in its newest form also makes provisions for a federal court review of challenges brought up regarding federal preemption of state insurance regulations. The changes made were implemented to give the bill a greater chance at passage in the House, and actually resulted in a unanimous vote of support by the Financial Services Committee, a bipartisan panel. But changes in the bill's language make the proposed Insurance Office more of an administrative entity than a regulatory office. It remains to be seen how the Obama administration and the full body of the Democratic-led Congress will respond to the H.R. 2069 bill in its latest form.

Many Insurance Associations Applaud Changes to Insurance Office Bill

Many professional associations across the insurance industry are well-pleased with the changes, including the Property Casualty Association of America, the National Association of Mutual Insurance Companies, and the Independent Insurance Agents and Brokers of America. Of particular interest to them is improved language which spells out the bill's definition of "insurers," which does not include individual agents, agencies or even small insurance companies.

Still, not all insurance professionals are in support of the changes approved by the Committee. The American Insurance Association, for one, did not appreciate new language added to the bill regarding the proposed Office's involvement in international insurance agreements. The AIA would rather see a stronger Office created, one with greater authority to serve as a federal advocate for the domestic industry in international dealings.

Other Changes Proposed to Federal Insurance Office Act

The House Finance Committee also adopted an amendment to the bill which would require the proposed Federal Insurance Office to undertake an initial study upon its creation, and report back to the Congress in a year's time to give recommendations on how to improve the nation's existing insurance regulation system. Just like other additions and adjustments to the bill, this one takes some of the teeth out of the proposed Office. Rather than having regulatory power as an overseer of the system, the Office would in this regard only function as an advisor, with no regulatory authority and no mandate to make changes as it sees fit after spending time in observation and study. In this Congressional advisory role, the Federal Insurance Office would share information with Congress on national and international insurance matters, and work on behalf of the U.S. government on insurance matters of global importance.

The idea of creating a Federal Insurance Office was first proposed by then-Treasury Secretary Henry Paulson. He came up with the idea in response to the American Insurance Group (AIG) bailout and its aftermath in 2008. At that time, Paulson felt that the creation of such an office to oversee the workings of the domestic insurance industry would help to prevent an AIG-like situation from repeating itself [2]. One of the main goals of creating an Insurance Office originally was the prevention of threats to the national financial system.

House Rep. Paul Kanjorski (D-Pa.) agrees with Paulson about the potential for a strong Insurance Office to help prevent a situation similar to the AIG collapse and bailout from happening in the future. As one of the bill's main architects, Kanjorski feels that the one of the goals informing the work of a proposed Federal Insurance Office should be to promote federal interaction with state-level regulators to help the U.S. government collect important information from the states and to keep tabs on the larger providers and the industry as a whole. Kanjorski feels the Insurance Office is an entity the federal government could lean on to help increase its awareness of the inner workings of the domestic insurance industry [3].

As House Bill H.R. 2069 prepares to reach the floor of the U.S. House of Representatives for debate, it is clear the passage of the proposed legislation would bring different ramifications to different groups both inside and outside the domestic insurance industry. It is clear that the idea of increasing federal control over the insurance industry is one that appeals more to Democrats than to Republicans at this point in time; but it is also becoming increasingly apparent that adoption of the measure is no slam-dunk for the Democrats. The bipartisan work on the Financial Services Committee demonstrate, if nothing else, that the creation of a Federal Insurance Office to oversee the domestic insurance industry will require a measure of bipartisan cooperation, no matter how the Office's specific powers and limitations of power end up being defined. The possibility of this latest version of House Bill H.R. 2069 getting voted into law does appear rather dubious given the constant back-and-forth which has gone on in hashing out its details.

[1] Retrieved 2009-12-10.
[2] Retrieved 2009-12-10.
[3] Originally posted on Retrieved 2009-12-07.



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