Commercial Brokers Urge Action on Surplus Lines Regulatory Reform

July 12, 2006

The Council of Insurance Agents & Brokers praised Congress for addressing insurance market reform and said there is still time this session to enact some easy, achievable changes that could have a major impact on the marketplace.

In testimony before the Senate Banking Committee, Scott A. Sinder, The Council’s general counsel, said lawmakers could adopt some incremental reforms to address “real marketplace problems” that would have a major impact on insurers, agents/brokers and consumers. Chief among them, he said, is regulation of surplus lines insurance, which is subject to burdensome regulations that differ from state to state and create a headache for brokers and agents, to say nothing of adding to the cost of the coverage.

“The difficulty of complying with the inconsistent, sometimes conflicting requirements of multiple state laws is a real problem,” Sinder told the Senate panel. “Simply keeping track of all the requirements can be a Herculean task.”

The Council, which represents commercial insurance brokers, offered its comments as the Senate Banking Committee was hearing debate on a broad bill to establish a federal regulatory charter option for all property/casualty and life insurers.

Sinder noted that the House Financial Services Committee is currently considering a stand-alone bill to reform the surplus lines marketplace by making the regulations in an insured’s home state the regulations that apply to all risks covered under the surplus lines policy, regardless of the location of the risk. According to Sinder, this step would “consolidate regulatory oversight and streamline surplus lines regulation, thus eliminating overlapping, conflicting rules that inhibit the non-admitted marketplace and harm consumers.”

“The proposal does not deregulate the non-admitted insurance marketplace or reduce consumer protections,” Sinder added.

Sinder’s comments came during a hearing on the quality of state insurance regulation convened by Banking Chairman Richard Shelby, R-Ala. Among the topics discussed was legislation to create an Optional Federal Charter for insurers as well as agents and brokers. The legislation was recently introduced by Sens. John Sununu, R-N.H., and Tim Johnson, D-S.D., both members of the Banking Committee. Sinder said the OFC is an important and long- overdue regulatory reform.

The Council also endorsed the broader federal charter legislation.

“We endorse this legislation for many reasons, not the least of which is its purely voluntary nature — voluntary for companies and agents and brokers as well as consumers. The bill provides real choice for all participants in the insurance marketplace.”

The Council has been an advocate for the optional federal charter for many years, Sinder said, but also recognizes that it “is a major undertaking with a great number of issues to be resolved.”

“Political reality dictates that it will not be an easy process, nor will it be quick,” he said.

However, Sinder said, as the debate begins on the optional federal charter, lawmakers still can move forward on incremental reforms such as the surplus lines legislation to address “real marketplace problems.”

“Surplus lines regulatory reform will not detract at all from the debate over the OFC nor is it a substitute for that legislation,” he said. “But in the meantime, it is an achievable reform, a somewhat uncontroversial reform. Its resolution will save millions of dollars for carriers and consumers and, we believe, ultimately increase compliance with state premium tax requirements by resolving the conflicts that make compliance difficult if not impossible today.”

Sinder noted that with the introduction of the optional federal charter legislation, Congress now is considering two approaches to insurance regulatory reform — the issue-by-issue approach and the Optional Federal Charter proposal.

“These approaches, although different, are not necessarily mutually exclusive. Partial reform now does not rule out further reform in the future,” he maintained. “Indeed, both may be necessary in order to bring comprehensive reform to the insurance marketplace.”

Source: The Council

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