You are here:HomeIssuesProtecting State Insurance Regulation 2010CBO Says Kanjorski's FIO Bill Will Preempt State Insurance Regulations

CBO Says Kanjorski's FIO Bill Will Preempt State Insurance Regulations

All the attention being paid to the healthcare debate on Capitol Hill has taken attention away from what is a continuing threat to state regulation...
March 16, 2010

All the attention being paid to the healthcare debate on Capitol Hill has taken attention away from what is a continuing threat to state regulation of insurance.

The Federal Insurance Office Act (H.R. 2609) was passed by the House Financial Services Committee on December 2, 2009. Language creating the FIO has been added to both House and Senate financial reform packages.

Under the bill that passed the committee on December 2, the FIO would be denied any supervisory or regulatory authority over insurance; would be barred from preempting state insurance laws governing rates, premiums, coverage requirements, antitrust laws and underwriting or sales practices; would be prohibited from demanding data from insurance agents or agencies; and any agreements it negotiated would be subject to the approval of Congress.

Now, the nonpartisan Congressional Budget Office (CBO) has issued its scoring of H.R. 2609. While it is estimated to cost only $9 million over five years, the CBO report contains troubling language:

"H.R. 2609 contains an intergovernmental mandate as defined in the Unfunded Mandates Reform Act (UMRA) because it would preempt state insurance laws."

Ground Zero in the States vs. Federal Battle: This bill has been Ground Zero in the battle between those who want federal regulation of insurance and those - like PIA - who are fighting to preserve state regulation.

After it was introduced, provisions limiting the reach of preemptions were included in the bill, largely as the result of work by the NAIC and NCOIL, supported by PIA. But suddenly, Capital Markets Subcommittee Chairman Paul Kanjorski (D-Penna.) presented his own version of the bill, from which the protections against wholesale preemptions that had been painstakingly negotiated had been removed.

After an aggressive campaign by the NAIC and its allies, most of the protections - including those for insurance agents and agencies - were restored. But this didn't sit well with the groups seeking to position the FIO to broadly usurp the states and more toward federal regulation: the American Council of Life Insurers, the American Insurers Association, the Financial Services Roundtable and the Reinsurance Association of America.

What It Means to Agents: The CBO observation that this bill preempts state regulation is made without any qualification, which is inaccurate. It makes no reference to the many areas in which FIO is prohibited from preemptions under H.R. 2609. While PIA would prefer that no federal insurance office of any kind be set up (especially in the Treasury Department), the protections in the bill are positive. Still, if the full House and the Senate take no further action on H.R. 2609, that would be a positive development.