Leader's Edge logo Under the Dome by Joel Wood Tell the Editor
Under the Dome by Joel Wood Taking the Lunge

If it feels like déjà vu all over again, it is. Let’s dare to be different and move the optional federal charter idea forward. A little drama never hurt anyone.

By  Joel Wood

In October, the House Financial Services Committee convened a hearing on the Optional Federal Charter, inviting the chairman of the National Association of Insurance Commissioners and other vaunted industry representatives (including The Council, of course) to testify as to their views on insurance regulatory reform. 

Sound like the movie “Groundhog Day”? For us jaded insurance lobbyists who have been reliving the same series of hearings since Rep. John Dingell’s, D-Mich., solvency inquisition in the early 1990s, it seemed so.

But this one had more of an edge to it, more drama, if such a thing can exist in the world of insurance legislation. 

It didn’t take long for the fireworks. The NAIC chairman, the courtly and towering Commissioner Walter Bell of Alabama, predictably stated the things state commissioners are doing to modernize regulation and all of the attendant horrors that federal regulation would bring. But he added a zinger, noting that he didn’t “want to hear any of those old sob stories” about agent licensing applications that involve paperclips, not staples, and different colored paper.

Rep. Richard Baker, R-La., who chaired the subcommittee when his party was in charge, took umbrage. In 15 hearings on insurance regulation during his tenure as chairman, Baker had frequently cited the anachronistic and senseless licensure hoops through which agents and brokers had to leap. He knew to whom Bell was referring.

“Mr. Bell, there’s an old country song,” Baker said with a flushed face of anger. “It’s called ‘You Had Me at Hello.’ Except when you made your presentation, you lost me at ‘hello.’” He then catalogued a long series of unfulfilled pledges made by Bell’s predecessors in their own appearances before Congress. 

Always poised and the son of a Methodist minister, Baker was nonetheless mad as hell, not so much at Bell, but at the institution of the NAIC. For six years, Baker and former Financial Services Chairman Mike Oxley, R-Ohio, tried valiantly to carve a middle ground on insurance regulation—drafting a series of reforms designed to prod state regulators without replacing any of their ultimate authority. For awhile, it looked as though the progressive wing of the NAIC might prevail in working with Baker to achieve that middle ground. But when the Oxley/Baker “SMART Act” was unveiled, the NAIC leadership lashed out at it with a vengeance. As Bell put it, regulators thought there would be “more federal tools for the states to get the job done and less preemption of our authority.”

Meanwhile, national insurance companies, who long for an optional federal charter, never got comfortable with Baker and Oxley’s approach. The middle collapsed and then control of Congress shifted. Even Baker conceded that “perhaps it was the ‘Not-So-SMART’ Act after all.” The Bell/Baker confrontation, an ugly exchange between two well-meaning gentlemen, accurately memorialized the six-year debate. 

With no SMART Act on the table, the lines of demarcation are now much clearer. Either you are for the optional federal charter or you are against. On the October panel, representatives of the National Association of Mutual Insurance Companies and the Independent Insurance Agents and Brokers of America echoed Bell’s timeless fears of intrusive federal bureaucracy, consumers getting screwed, and state guaranty funds going bust. On the progressive end, the three witnesses in favor of the charter idea were The Council’s indefatigable Skip Counselman (CEO of Baltimore’s RCMD) and representatives of the American Insurance Association and the American Council of Life Insurers.

The AIA witness, Bill McCartney of USAA, was a heat-seeking missile. McCartney served as Nebraska insurance director and was NAIC chairman in 1992. “During a hearing before (the House) in the early ’90s, I asked Congress to give states the time necessary to effect the changes we had identified,” McCartney testified. “I also said that, if the states proved unable to make those changes, I would be the first to admit it to Congress. It’s been 15 years, but here I am.” 

It was a gratifying hearing—with clear delineations between those who want to protect their territory and those baffled at the defense of a regulatory structure so clearly at odds with a converging national and international marketplace.

The median view of Financial Services Committee members was best put by Subcommittee Chairman Paul Kanjorski, D-Pa. Some days, he said, he thinks the federal option is exactly the right thing to do. Some days he thinks it just can’t be done and there needs to be some middle ground that would nudge the states into a better situation. He hasn’t yet made up his mind. 

Six years ago, Richard Baker surveyed the political landscape and concluded the optional charter was a reach, and he lunged toward something in between the status quo and the nirvana of a charter modeled after the successful dual bank chartering system. It didn’t work out. His successor Rep. Kanjorski, from a different party in a different region but of similar thoughtful temperament, now must choose his way.

I hope he does what I think he knows is right: Lunge for modern insurance regulation and an optional federal charter.

Wood is the Council’s senior vp of Government Affairs.
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