Rep. Jackie Speier (D-CA) and others in the California Congressional delegation have put the brakes on Capital Markets Subcommittee Chairman Paul Kanjorski's (D-PA) Insurance Information Act of 2008, H.R. 5840, citing fears that the bill's limited preemption provision may be used to nullify California's Proposition 103—a sacred cow of local politics requiring prior approval of most property casualty insurance rate changes. The Kanjorski bill had been picking up steam since its introduction on April 17, 2008. Recent changes adopted in the Manager's Amendment during the July 9, 2008 subcommittee markup had fueled speculation that the bill would be placed on the suspension calendar—allowing it to go to the floor with only, at most, pro forma action by the full committee.

However, during the July 9 markup, Rep. Speier questioned the scope of the preemption requirement under the bill and offered a limiting amendment. She asserted that the Manager's Amendment impermissibly ceded congressional authority to the secretary of the treasury to determine whether preemption of state law is needed. She withdrew the amendment, however, and pledged to work with Kanjorski to alleviate her concerns regarding the scope of preemption. It appears, however, that they have been unable to resolve their differences, as consideration of the bill has been put on hold until Congress returns on September 5.

Kanjorski's Manager's Amendment, adopted by the subcommittee, modified the bill to address several concerns expressed during the June 10 Capital Markets Subcommittee hearing. The National Association of Insurance Commissioners (NAIC) and National Conference of Insurance Legislators (NCOIL) had previously signaled cautious support of the bill, conditional on certain modifications, while industry had stressed a strong preemption provision. The Manager's Amendment made three key changes in response to the questions identified during the hearing.

First, the bill added confidentiality protections and information-sharing agreements that appease insurers and regulators alike. Insurers had expressed concerns about preserving the confidentiality and privilege of sensitive insurer information submitted to the Office of Insurance Information (Office) pursuant to its data gathering authority. Protecting confidentiality is typically a critical concern for insurers in the regulatory environment. Indeed, these concerns also have been prominent in the recent debate regarding publication of the Market Conduct Annual Statement. The new provisions also allow for information-sharing agreements to permit the NAIC to share data with the Office. The NAIC has positioned itself as a key supplier of information to the Office, seeking to show Congress that the NAIC can work with targeted federal insurance regulatory reforms in an effort to blunt OFC legislation.

Second, the Manager's Amendment added safeguards and review procedures to limit preemption, an inconsistent state insurance measure. The bill now has a multi-step process that:

  • Requires the Office to publish notice of a potential inconsistency and allows 30 days for comment by interested parties before the Office renders an initial determination;
  • Mandates publication of the determination and notification to the affected state;
  • Establishes a reasonable time for the Office to render a final determination and inform the Secretary and the affected state;
  • Authorizes the Secretary to stay preemption; and
  • Requires the Secretary to publish notice describing the extent of preemption and authorizes Congress to act to prevent it.

We would note that this opaque statutory language does nothing to change the constitutional limitation on Congress' authority—that it is to pass legislation to present to the President.

Third, the bill has increased the Advisory Group from 9 to 13 members and requires that statelegislators have a seat at the table—satisfying NCOIL's prior objections. The Advisory Group may weigh in on whether to enter an international agreement and on preemption decisions. Notably, despite industry objection, the amendment retained a seat on the Advisory Group for an FTC representative even though the FTC lacks any expertise or authority regarding insurance.

Despite these modifications, the bill will require additional fine-tuning to make it to the floor. While the subcommittee on July 9 praised the bipartisan efforts and consensus-driven process behind the legislation, the bill ran afoul of California politics. The preemption provision is critical to the bill's success, as without it, the Office will be unable to carry out its intended function to facilitate international insurance agreements. Preemption is always a delicate issue, all the more so when related to the already contentious debate over federal reform of insurance regulation. It will be interesting to see what changes, if any, emerge following negotiations during the August recess.