State Regulatory Response to SMART ACT

The NAIC has responded to Rep Oxley’s SMART Act proposal to pre-empt a large amount of state regulatory power.  Here is a listing of the reviewing panel’s major problems with the proposal. (via Bestwire $)

The SMART Act would negatively impact state regulatory authority to supervise property/casualty, life, and health insurance, as well as reinsurance, by establishing federally mandated standards and pre-empting state laws that differ from them.

Exactly.  This preemption proposal is designed to reduce the power of the states to regulate.  This is, in part, because of the different standards in each state which increase compliance costs.  The states have been asked to help standardize these regulations—they say they are trying, but they do not move quick enough to suit some.  The threat of federal pre-emption should get them moving faster.

The SMART Act would create unhealthy regulatory confusion in insurance markets by subjecting state regulations and orders to second-guessing and possible interference by a new federal entity called the State-National Insurance Coordination Partnership. In addition to raising serious legal and practical concerns regarding its composition, powers, and administration, this partnership would encourage time-consuming and expensive litigation by those who disagree with state regulatory actions, during which the legitimacy of state actions would hang under a cloud of doubt until a final resolution is reached in federal courts.

Life is tough.  However, this seems like something which can be fixed with interim rules.

In general, the time limits for states to implement the SMART Act's requirements are too short, and many of its provisions seem impractical, unworkable or detrimental to states' consumer-protection efforts.

Get started now.  Some of the states’ actions are pro-consumer, but many impose burdens on insurers which have no value to consumers.  The purpose of SMART is arguably is uniformity, not “no protection.”

Federal legislation generally isn't needed to implement the various provisions of the NAIC's regulatory modernization road map. However, federal legislation would be welcome to enable access by all state insurance regulators to the FBI criminal database, to enable sharing of confidential regulatory information among federal and state regulatory agencies, to grant liability protection to the NAIC as the central data exchange for states, and to grant states equal receivership powers with the federal government.

Really?  "We can regulate without your help thank you very much, but we'd like access to your cool databases," say the states.  Further, the states want some lawsuit immunity and more powers over insurance receiverships.  I am not sure about that last one--since insurance receiverships are the complete province of state law, I wonder what additional powers they might need.

None of these attack the central problems.  Are the states doing a good job?  Can the federal government do a better job or at least not a worse job?  What is the real cost of Federalism? Why is an industry that is predominantly made up of interstate enterprises subject to parochial regulation? Will insurers and consumers be better or worse off under a new regulatory framework?.  The NAIC is an interest group. It has an interest to protect--the power of state regulators.  Thus, we are seeing something less than a well though out critique of the SMART Act.   To be fair, I haven't seen the NAIC's report and it could be quite detailed.