The Property Casualty Insurers Association, the National Association of Mutual Insurance Companies and the American Insurance Association are calling for Congress to ensure state-based insurance regulation remains protected from federal or international “regulatory encroachment.”

“Congress must now increase its oversight regarding the unprecedented federal and international intrusion into state insurance regulation,” Kurt Bock, CEO of Country Financial, said in written testimony April 30 before the Senate Banking Subcommittee on Securities, Insurance and Investment. He spoke on behalf of PCI and NAMIC.

“Clarity regarding the intended outcomes of federal and international involvement is necessary,” Bock said. “Such action should include a clear statement of policy, applicable to federal and international negotiations, that reaffirms and defends the existing state-based system of regulation for all U.S. insurers and insurance groups.”

He said that such an effort should encourage “greater collaboration and unity among our U.S. agencies that supports more transparency and accountability.”

What’s more, Bock urged Congress to make sure any new regulations in this regard are “rare” and only cover “documented gaps in protecting U.S. consumers, rather than just a forced compromise between state insurance and federal banking or global standards.”

What’s at issue is continued insurance industry wariness about federal and international regulatory momentum. One area of concern: the Federal Reserve and Department of Treasury’s involvement (through the Federal Insurance Office and the Financial Stability Oversight Council) in overseeing “too-big-to-fail” insurers as part of the Dodd-Frank financial reform law. There’s also an ongoing effort through the International Association of Insurance Supervisors to apply global capital requirements to large U.S. insurers who have significant international operations. Efforts in the E.U. to apply standardization through Solvency II have also drawn critical and cautious industry response.

Robert Falzon, executive vice president and CFO of Prudential Financial, spoke on behalf of AIA and The American Council of Life Insurers, and his company company is designated by the FSOC as “systemically important.” Falzon, in his written testimony, said U.S. insurers are worried that international capital standards are being developed through the IAIS too quickly.

He said that process isn’t necessarily taking into account a law passed in late 2014 that clarifies the Federal U.S. Reserve Board can develop unique capital standards for insurers rather than defaulting to “inappropriate” policies typically applied to banks.

Falzon said that the IAIS timeline, which will be stretched out incrementally over several years, should accommodate U.S. implementation of this new law.

He also urged Congress to consider that the U.S regulations are equal in outcome to Solvency II, a new measure in Europe designed to give unilateral recognition to insurers and reinsurers that conduct business in the European Union but are headquartered somewhere else.

Fazon said that the U.S. federal and state regulators have been productive in their interactions with the European Commission and E.U. regulators in the Solvency II process. But he called for continued, expanded cooperation between the U.S. and E.U. regulators to make sure that both processes, particularly the international capital standard through the IAIS, ensure “markets where all competitors are held to the same high standards of solvency, market conduct and consumer protection.”

On the U.S. federal regulatory level, Fazon said that insurers support reform of the Financial Stability Oversight Council process to allow it to more broadly consider views of primary state insurance regulators and also de-designate systemically important insurers.

Sources: NAMIC, PCI, AIA