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Under the Dome by Joel Wood Blindsided

None of us saw this one coming. Framing regulatory reform as free competition is getting Congress' attention.

By  Joel Wood

From a congressional production standpoint, presidential election years are usually a snore—when gesticulation triumphs over reasoned debate and political posturing overwhelms the process of legislative compromise.

In terms of big picture resolution of major issues affecting the insurance industry, that’s been the case this year. But there have been a number of significant developments that have, frankly, surprised me.

Conventional wisdom would have held that little to no progress on broad insurance reform would be made in a year like this. But—say what you will about the Bush Administration and its record-low approval ratings in its final year—Treasury Secretary Hank Paulson’s progressive “Blueprint for Financial Services Regulatory Modernization” galvanized the entire sector.

How else would anyone have anticipated that witnesses for the National Association of Insurance Commissioners and the National Conference of Insurance Legislators (NCOIL) would be going at each other’s throats during a regulatory reform hearing before the House Financial Services Committee?

How else would anyone have imagined Sen. Richard Shelby, R-Ala., the ranking minority member and former chairman of the Senate Banking Committee, stating fairly strong philosophical agreement with the concept of an optional federal charter at a similar hearing of his committee? Shelby is a conservative’s conservative—deeply skeptical about anything that could expand the contingent liability of the federal government. Yet Paulson’s plan has framed the issue of regulatory reform as one not of big government versus small, but rather of free and open national competition. Shelby seems intrigued.

None of us jaded insurance lobbyists in the room saw that one coming.

How else could no one have blinked when John McCain, in the midst of the critical Florida Republican primary, endorsed an optional federal charter as the legislative answer to the catastrophic insurance crisis (instead of a federal Nat-Cat reinsurance backstop)?

I’ve been searching for months to find the smart lobbyist who approached McCain on this issue. Until that moment, no major candidate for president ever had embraced the need for a national federal insurance regulator.

And, perhaps most importantly, how else could House Insurance Subcommittee Chairman Paul Kanjorski, D-Pa., have moved with such ease in passing legislation (with bipartisan consensus) that would establish a federal “Office of Insurance Information” housed in the Treasury Department? Such an office would have limited authority to preempt states (only to the extent that state insurance laws inhibit relations with other countries). The office would be an unprecedented federal toehold in the state regulatory sphere. Kanjorski went a long way toward breaking up the circular firing squad that has defined the state-versus-federal debate for years.

To be sure, none of this is real until it is enacted, and given how much is in play during the elections this year, the future is murky. But some reasonable projections can be made.

First, the Office of Insurance Information (OII) legislation will pass the House of Representatives, notwithstanding a frivolous complaint from some California legislators that it would upend their sanctified-but-invasive Proposition 103 rate-regulatory regime.

Senate Banking Committee Chairman Chris Dodd, D-Conn., has indicated this bill (plus The Council’s number-one priority: surplus lines reform) may be the only reform around which Congress can build consensus in the remaining few legislative days in this session. Given the plodding way the Senate operates, it may be that the OII legislation will take some further vetting and will be a 2009 issue, not resolved in 2008.

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