It is safe to say that there is no moment more dangerous for consumers – and citizens –than one of financial panic when the federal government is moving boldly to respond.
Regulatory frameworks are restructured, rules are rewritten and authority is shifted at lightning speed, with limited or no analysis of what business or special interest in profiteering on fear and uncertainty.
So it comes as no surprise that, as the Bush White House and Democrats leaders of the Congress are hustling to avert a meltdown of American financial systems that even cautious observers are suggesting could be the worst since the Great Depression, insurance-industry lobbyists are working this week to slip a radical rewrite of regulations that currently empower states to protect consumers.
How radical? Imagine purchasing auto insurance over the internet from a Belgian firm that advertises the best prices. Then imagine, after your car is wrecked in a crash, that your calls to Brussels go unanswered. You contact the office of your state insurance commissioner and its consumer protection agency only to learn that they have no authority to sanction the firm. They can’t even warn other families against purchasing insurance from the Belgian company because that might represent an unfair restriction on trade.
That may sound like madness. But is a scenario that consumer protection groups and state insurance commissioners suggest could unfold if a fast-tracked proposal for financial services deregulation that was written to ease if not eliminate essential oversight of multi-national insurance and financial-service firms, the “Insurance Information Act of 2008” (H.R. 5840).
H.R. 5840 would effectively allow the Department of the Treasury to gut state regulation of some of the wealthiest and most powerful corporations in the country in order to assure that the U.S. complies with international agreements regarding insurance policy.
The bottom line with regard to this legislation, behind which the insurance industry has thrown all of its lobbying muscle, is summed up by one of the savviest of the state regulators, Wisconsin Insurance Commissioner Sean Dilwig. “(H.R. 5480) creates an unaccountable federal process that produces deregulation of the insurance industry to the detriment of consumers,” says Dilwig.
Were H.R. 5840 to be enacted, state insurance commissioners – who have in recent years done a far better job than their federal counterparts of protecting consumers from the excesses of insurance companies that now fancy themselves to be “financial services” firms – would be disempowered. Tough state regulations would be gutted. Policing units would be told to go easy on consumer protection in order to assure that foreign firms that want to get into lucrative U.S. insurance markets — and the managers of international trade agreements who advocate on their behalf – are satisfied.
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This legislation, explains the National Conference of State Legislators, goes against basic democratic and public-service principles. “The determination as to whether or not a state insurance law is in violation of an international agreement or treaty should not be made by an unelected federal bureaucrat who holds no responsibility to the American consumer,” explains the NCSL analysis of this dangerously-drawn legislation.
Yet, H.R. 5840 could become the law of the land this week – either as a hastily-passed resolution lost in the flurry of financial-services measures that will be considered or, more likely, as an attachment to an appropriations measure.
If this happens, the federal government will have begun a process of tearing up necessary layers of protection for insurance consumers at precisely the point when those protections are most needed.
And the overwhelming majority of Americans won’t know that they have been rendered dramatically more vulnerable to fraud, abuse and the loss of the personal and financial security.
The secretive push to pass H.R. 5840 has earned little media attention, and even less congressional scrutiny. But state officials, who are often the last line of protection for families threatened by rapacious and often unaccountable out-of-state corporations, are horrified by its potential to eliminate basic safeguards for consumers.
Maine Superintendent of Insurance Mila Kofman warns in a letter also signed by Maine Attorney General G. Steven Rowe that H.R. 5840 threatens to “fundamentally erode” state insurance regulation. Maine Governor John Baldacci says, “H.R. 5840 would adversely impact and erode consumer protections currently provided by state insurance regulation.”
Ohio Insurance Director Mary Jo Hudson has told Congress that the H.R. 5840 fails to defend state-based insurance-regulation systems. “I am concerned that if we do not come together to find practical advocacy solutions that will protect consumers in all of our states — right now — we will merely be standing on the sidelines while states are stripped of their authority to oversee their insurance markets and protect their residents,” she wrote.
Nevada Insurance Commissioner Alice Molasky-Arman says H.R. 5840, is it is currently written, has the potential to disrupt the insurance marketplace in his state and place the insurance consumers at risk.
Democratic leaders in the U.S. House and, to a lesser extent the Senate, have a responsibility to pull the brakes on any attempt to pass H.R. 5840. They should not allow it to be included in a package of financial-services industry “reforms.” They cannot accept it as a compromise with industry lobbyists. And they must not allow this attack on consumers to be attached to any measure coming out of the House Appropriations Committee.
Appropriations Committee chair Dave Obey, D-Wisconsin, has a good track record as a defender of consumers and a smart critic of abusive free-trade measures. Along with House Speaker Nancy Pelosi, D-California, and honest players on the Banking Committee, Obey needs to take the lead this week and say “no” – absolutely and unequivocally “no” – to any attack by the insurance industry on the state regulations that provide an essential line of defense for American families that have every reason to be terrified by churning markets and an unstable economy.
As Wisconsin’s Dilwig explains, “The bill has the undesirable effect of empowering the U.S. Treasury with a unique preemption mechanism that allows federal policy statements arrived at without open debate to be substituted for insurance regulatory standards. This preemptive authority is not subject to oversight by Congress, does not include a meaningful say by state insurance policymakers, either executive or legislative, and is not subject to meaningful judicial review.”
In other words, it is the ultimate blank check for the insurance industry.
