In today’s hard-edged partisan
congressional culture, it’s nice to see some surplus
thought going into insurance legislation. The founding fathers
would be proud.
I had lunch recently with a dozen or so lobbyists and a
senator—a regular fundraising affair. The subjects were
the usual: the politics of healthcare reform, the number of
seats Republicans could gain in November, and the size of the
campaign war chest needed to re-elect a particular
“Senator, what I want to know,” I asked,
“is whether you’re staying up at night, staring at
the ceiling, worrying about the premium tax allocation
provisions of the non-admitted reform language within the
insurance title of the Restoring American Financial Stability
Act of 2010?”
Sometimes I crack myself up.
For going on eight years now, I’ve been a broken
record on the subject of surplus lines reform to hundreds of
congressional members and staffers. I’ve certainly
rattled on about it in this space. Since its origins under
then-Chairman Mike Oxley, R-Ohio, in the House Financial
Services Committee, we’ve seen the reform pass through
the House of Representatives on four occasions, only to come up
short of the finish line in the Senate. The legislation would
require that the only rules governing access to surplus lines
products on a multi-state basis are the rules of the state in
which the coverage was placed.
If Congress passes the broad financial services regulatory
reform legislation—and at this writing in mid-May, it
looks like it will—the surplus lines reform would
probably be a part of it. My purpose here is not to rehash the
tortured path of this effort, but rather to celebrate the
bipartisanship that has made it possible to get to this point.
As chairman and ranking Republican of the Senate Banking
Committee, Senators Chris Dodd, D-Conn., and Richard Shelby,
R-Ala., don’t always see eye-to-eye, and their political
backgrounds, philosophies and styles differ significantly. Left
to their own devices, however, Dodd and Shelby would have split
their differences long ago and passed a major reform bill. But
the two had to labor in a chamber where political agendas often
get in the way of a good idea.
Histrionics aside, few deep policy issues remain to be
resolved. Dodd and Shelby agree on principles: that no
institution should be “too big to fail,” that
exotic financial instruments should be transparent and well
regulated and that consumer protection should be enhanced (but
not at the expense of solvency oversight). Further, they have
agreed on a mechanism to unwind failing financial firms.
The sausage-making of this legislation has been ugly, but it
is heartening to see the degree of accord found between the two
men, even though the media love the spectacle of a high-stakes
political fight that exaggerates every distinction.
The insurance title of the legislation has escaped all the
headlines. Perhaps that’s because multi-state surplus
lines insurance reform is as un-sexy as any topic ever debated
on the Hill. But there are quite meaningful advances in the
legislation, including reinsurance reforms and the creation of
an Office of National Insurance at the Treasury Department.
Most everyone in the industry gets jumpy at the thought of a
new office with insurance oversight, fearing a
worst-of-both-worlds overlay of federal regulations with no
relief from the underlying inefficiencies of state-by-state
rules. But the Dodd-Shelby proposal is thoughtfully
constrained, with preemptive powers solely over state
regulations that get in the way of international obligations.
The Office of National Insurance will serve as an overdue voice
for the industry on international affairs.
They say success has a thousand fathers, and we are truly
grateful for Republicans and Democrats alike who have supported
the surplus lines reform in both chambers. The authors of the
provision, especially, deserve credit: Representatives Dennis
Moore, D-Kan., and Scott Garrett, R-N.J., and Senators Evan
Bayh, D-Ind., and Bill Nelson, R-Fla. Another major leader on
insurance issues is Sen. Tim Johnson, D-S.D., the most
outspoken Senate advocate for the Optional Federal Charter.
Johnson is next in line behind Dodd (who is set to retire) in
Democratic seniority on the Banking Committee.
While it appears clumsy and overly partisan, in this case
Congress is working the way the Founding Fathers intended. The
surplus lines provisions, though obscure in the public
consciousness, are an example—given the relative ease
with which they passed in the House and the difficulty in
getting them through the Senate.
The story goes that George Washington and Thomas Jefferson
were arguing the issue while drinking coffee. Washington asked
Jefferson, “Why did you pour that coffee into your
saucer?” “To cool it,” Jefferson replied.
“Even so,” Washington said, “we pour
legislation into the senatorial saucer to cool it.”
The starting point for many of us insurance lobbyists was
the notion of the Optional Federal Charter, which would be (in
its purest extraction) the way insurance would be regulated if
one were starting from scratch today. The starting point for
many others in the industry was no reform at all, leaving all
insurance issues to be addressed purely at the state level. As
a card-carrying member of the pro-optional charter crowd, I
nonetheless understand the some people prefer the devil they
know to the one they don’t.
Fortunately, on the issue of multi-state placements of
non-admitted commercial insurance products, we were able to
work with many thoughtful members of Congress and within the
industry—those who desire a single, national, optional
regulator, as well as those who think that approach is
anathema. If thoughtfulness prevails, these reforms will soon
be signed into law.
Wood is The Council’s senior vice president of