I had lunch recently with a dozen or so lobbyists and a senator—a regular fundraising affair. The subjects were the usual: the politics of healthcare reform, the number of seats Republicans could gain in November, and the size of the campaign war chest needed to re-elect a particular lawmaker.
“Senator, what I want to know,” I asked, “is whether you’re staying up at night, staring at the ceiling, worrying about the premium tax allocation provisions of the non-admitted reform language within the insurance title of the Restoring American Financial Stability Act of 2010?”
Sometimes I crack myself up.
For going on eight years now, I’ve been a broken record on the subject of surplus lines reform to hundreds of congressional members and staffers. I’ve certainly rattled on about it in this space. Since its origins under then-Chairman Mike Oxley, R-Ohio, in the House Financial Services Committee, we’ve seen the reform pass through the House of Representatives on four occasions, only to come up short of the finish line in the Senate. The legislation would require that the only rules governing access to surplus lines products on a multi-state basis are the rules of the state in which the coverage was placed.
If Congress passes the broad financial services regulatory reform legislation—and at this writing in mid-May, it looks like it will—the surplus lines reform would probably be a part of it. My purpose here is not to rehash the tortured path of this effort, but rather to celebrate the bipartisanship that has made it possible to get to this point. As chairman and ranking Republican of the Senate Banking Committee, Senators Chris Dodd, D-Conn., and Richard Shelby, R-Ala., don’t always see eye-to-eye, and their political backgrounds, philosophies and styles differ significantly. Left to their own devices, however, Dodd and Shelby would have split their differences long ago and passed a major reform bill. But the two had to labor in a chamber where political agendas often get in the way of a good idea.
Histrionics aside, few deep policy issues remain to be resolved. Dodd and Shelby agree on principles: that no institution should be “too big to fail,” that exotic financial instruments should be transparent and well regulated and that consumer protection should be enhanced (but not at the expense of solvency oversight). Further, they have agreed on a mechanism to unwind failing financial firms.
The sausage-making of this legislation has been ugly, but it is heartening to see the degree of accord found between the two men, even though the media love the spectacle of a high-stakes political fight that exaggerates every distinction.
The insurance title of the legislation has escaped all the headlines. Perhaps that’s because multi-state surplus lines insurance reform is as un-sexy as any topic ever debated on the Hill. But there are quite meaningful advances in the legislation, including reinsurance reforms and the creation of an Office of National Insurance at the Treasury Department. Most everyone in the industry gets jumpy at the thought of a new office with insurance oversight, fearing a worst-of-both-worlds overlay of federal regulations with no relief from the underlying inefficiencies of state-by-state rules. But the Dodd-Shelby proposal is thoughtfully constrained, with preemptive powers solely over state regulations that get in the way of international obligations. The Office of National Insurance will serve as an overdue voice for the industry on international affairs.
They say success has a thousand fathers, and we are truly grateful for Republicans and Democrats alike who have supported the surplus lines reform in both chambers. The authors of the provision, especially, deserve credit: Representatives Dennis Moore, D-Kan., and Scott Garrett, R-N.J., and Senators Evan Bayh, D-Ind., and Bill Nelson, R-Fla. Another major leader on insurance issues is Sen. Tim Johnson, D-S.D., the most outspoken Senate advocate for the Optional Federal Charter. Johnson is next in line behind Dodd (who is set to retire) in Democratic seniority on the Banking Committee.
While it appears clumsy and overly partisan, in this case Congress is working the way the Founding Fathers intended. The surplus lines provisions, though obscure in the public consciousness, are an example—given the relative ease with which they passed in the House and the difficulty in getting them through the Senate.
The story goes that George Washington and Thomas Jefferson were arguing the issue while drinking coffee. Washington asked Jefferson, “Why did you pour that coffee into your saucer?” “To cool it,” Jefferson replied. “Even so,” Washington said, “we pour legislation into the senatorial saucer to cool it.”
The starting point for many of us insurance lobbyists was the notion of the Optional Federal Charter, which would be (in its purest extraction) the way insurance would be regulated if one were starting from scratch today. The starting point for many others in the industry was no reform at all, leaving all insurance issues to be addressed purely at the state level. As a card-carrying member of the pro-optional charter crowd, I nonetheless understand the some people prefer the devil they know to the one they don’t.
Fortunately, on the issue of multi-state placements of non-admitted commercial insurance products, we were able to work with many thoughtful members of Congress and within the industry—those who desire a single, national, optional regulator, as well as those who think that approach is anathema. If thoughtfulness prevails, these reforms will soon be signed into law.