NCSL Letter to the Federal Insurance Office

December 16, 2011


Michael T. McRaith,
Director, Federal Insurance Office,
Department of Treasury, MT 1001
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220

Re: Improvement and Modernization of the System of Insurance Regulation in the United States

Dear Director McRaith:

Thank you for the opportunity to submit comments on behalf of the National Conference of State Legislatures (NCSL) on the regulation of insurance in the United States as you work to assemble your report to Congress in accordance with the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

As you know from your previous role as director of the Illinois Department of Insurance, state legislatures serve an important function in the regulation of insurance. NCSL is committed to upholding state regulation of the business of insurance, and we appreciate your recent public remarks affirming as much. For more than 150 years, the states have proven that they can successfully and effectively protect consumers and make certain that promises made by insurers are kept. State regulation ensures that rates are fair, adequate and not excessive; policy language is clear and includes what it should; insurers are financially sound; claims are paid; and consumers are informed and their complaints are investigated and resolved.

State regulation is accessible, accountable and responsive, and operates with greater efficiency than would any federal regulatory scheme. Decentralized authority promotes regulatory innovation and safeguards against the imposition of regulatory controls with potential adverse consequences that would be national in scope. Furthermore, state legislatures are uniquely positioned to set policies that accurately reflect local values and concerns, and the nation as a whole benefits from regulation tailored to serve diverse economic, social and cultural needs as well as varying geographic and environmental conditions.

Working individually and at the national level, states are already engaged in insurance regulatory modernization. In recent years, states have enacted a wide range of reforms to streamline, simplify and coordinate state systems and to establish uniform regulations and processes, where appropriate. NCSL believes that state efforts to enact significant reforms in critical areas represent tremendous progress and will continue to support further efforts as states move forward to achieve widespread reform in all areas in the years ahead.

NCSL recognizes a valid federal role in promoting well-functioning insurance markets. However, we remain concerned that the Federal Insurance Office (FIO) will serve as a vehicle to promote a greater federal role in the historically state-regulated industry of insurance. Therefore, NCSL opposes any administrative action or recommendation by the FIO that relies on wholesale preemption of state authority; would compel state compliance with federal standards or those of any non-governmental third party; or conditions, restricts or redirects state insurance revenues, including insurance premium taxes, fees and fines, either directly or as a condition of a state’s refusal to submit to federal standards or federal efforts to commandeer a state executive branch official to participate in a federal regulatory program.

NCSL is confident that the FIO’s study on how to modernize and improve the system of insurance regulation in the United States will demonstrate the soundness of state regulation of the business of insurance. However, pressure remains by some in Congress and industry to establish a single federal regulator of insurance or allow for dual federal and state insurance regulation. If enacted by Congress, such proposals would eliminate or diminish state insurance regulation irreparably, bifurcate insurance regulation between the states and the federal government, undermine the state system of consumer protection and financial surveillance, threaten a host of other unintended consequences, and inevitably cause a loss of jobs, taxes, fees and other critical state revenues and resources.. Therefore, NCSL would oppose any recommendations resulting in federal legislation that preempts state authority through the creation of a federal insurance official, commission or entity with the authority to regulate insurance, to implement federal standards, to enforce state compliance with federal standards, or to initiate or participate in judicial proceedings to resolve differences between federal standards and state law.

Finally, NCSL opposes any recommendations regarding the establishment of federal standards for state solvency regulation that cedes any authority to federal agencies to regulate financial institutions involved in the business of insurance and congressional ratification of trade agreements that would preempt state regulation of insurance for solvency purposes. The safety and soundness of insurance companies operating in the United States are the prime objectives of state insurance regulation. To ensure that these objectives are met, an effective financial surveillance and regulation system is vital. State legislatures have endeavored to strengthen state insurance departments and to create standards for financial regulation that have improved the solvency of insurance companies. Swift and effective action by state legislatures to reform state solvency regulation proves that states are more capable of adjusting to changes in the marketplace than Congress or federal regulatory agencies.

Thank you again for the opportunity to comment. NCSL appreciates your continued commitment to the state regulation of insurance, and we wish you all the best as you work to complete your report to Congress in the new year. If you have any questions regarding this matter please contact James Ward in NCSL’s Washington, D.C. office at (202)624-8683 or


Senator Stephen R. Morris
Senate President, Kansas
President, NCSL

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