New Bill Insures America First

The International Insurance Standards Act of 2018 (IISA) "would be a milestone in fulfilling the Trump administration's promise to put America First," wrote Nevada Republican activist Lisa Noeth.  After having passed the House of Representatives on July 10, IISA deserves to become law after approval in the Senate in order to protect America's uniquely federalist insurance regulations from foreign encroachment.

The House approved IISA using a procedure for bills with such broad support that they bypass usual House rules.  Congress passed the bill after about a 40-minute debate in a voice vote.  Congress then rejected a motion to hold a recorded vote. 

"This bill is pro-consumer and pro-state insurance regulation," stated Jon Gentile from the National Association of Professional Insurance Agents (PIA).  As a congressional report on IISA elaborated:

[The] United States' state-based regulatory framework is the strongest and most robust insurance regulatory architecture in the world.  No other system of insurance regulation combines the state-based focus on policyholder protection with the four, interconnected aspects of consumer protection, solvency protection, market-conduct protection, and resolution protection.

A 2015 research paper on "State vs Federal Regulation of Insurance" analyzed that if the "primary function of insurance regulation is to protect consumers, a unified system is not the answer."  In particular, America "is a very large country in terms of both population and geographical size," with differing needs across rural and industrial areas.  While Louisiana faces hurricane risks, Nebraska confronts wind damage.

Local regulatory control means that "changes can be made to address problems specific to an individual state" and "more effective regulatory decisions can be made quickly and efficiently," the paper added.  By contrast, "central regulation of insurance would give [the] federal government more influence over our nation's economy ... ultimately imposing on the rights of states to govern themselves."  "State insurance regulatory systems are accessible and accountable to the public and sensitive to local social and economic conditions," the National Association of Insurance Commissioners (NAIC) has concurred.

In contrast, the report noted worries:

International insurance standards negotiations could be used as a "back-door" method to implement European insurance standards in the United States.  The European insurance regulatory model is bank-centric and less policyholder friendly than the U.S. insurance regulatory regime.

The report cited American involvement in ongoing "negotiations regarding global insurance standards in international forums, including the International Association of Insurance Supervisors (IAIS) in Basel, Switzerland."  Similarly, the National Association of Mutual Insurance Companies (NAMIC) "has long expressed concern" that IAIS negotiations "could conflict with and undermine the regulatory structure that has served U.S. consumers for more than 150 years."  "International negotiations can have serious consequences for the domestic insurance industry and its consumers," Gentile has stated.

Accordingly, per the congressional report, IISA "codifies the primacy of the United States' system of insurance regulation during international insurance negotiations."  Thus, "any party negotiating international insurance standards, on behalf of the Federal Government, may not vote in favor of any agreement if it is inconsistent or does not reflect the current United States system."  The act also includes measures for federal negotiators to consult with Congress and to "closely consult, coordinate with, and seek to include in" all negotiations state regulatory representatives.

For Representative Sean Duffy, one of IISA's sponsors, the involvement of state insurance officials is particularly important.  Most American trade representatives "have little experience regulating the insurance industry," he has noted.  He and NAIC have both expressed concerns about unclear provisions in a 2017 European Union (E.U.)-United States insurance agreement, given the limited participation of American state regulators.

With the support of insurance representatives, Duffy explained IISA's value after the bill's House passage.  Americans "should not have some executive appointee negotiate a trade deal that undermines our state-based model."  Rather, if American officials "are going to be changing rules, you can't just do it without us and through international negotiations[.] ... [W]e have a role in this chamber and oftentimes we cede power to the executive."

Against IISA's merits, the objections of individuals like R.J. Lehmann from the free-market think-tank R Street are unconvincing.  As he has noted, the Congressional Budget Office has estimated that IISA's consultation processes would cost no more than $500,000 annually.  Greater consultation among stakeholders would also in the long run allow the development of more consensus over trade deals, rather than "render insurance a topic permanently off the table in international trade negotiations."  

Lehmann has also raised constitutional objections to IISA.  Lehmann asserts that a "statutorily mandated consultation with state officials amounts to a direct contravention of Article VI, Clause 2 of the U.S. Constitution" or Supremacy Clause.  To buttress his claim, he cites the Supreme Court case American Insurance Association v. Garamendi.

Yet the Constitution's Article 1, Section 8 explicitly states that "Congress shall have Power ... To regulate Commerce with foreign Nations," a power that includes the conditioning of regulatory negotiations.  Given Congress's historic primacy concerning trade, academics have already advocated greater trade consultation between the executive and legislature.  Senator Mike Lee currently is seeking "to restore the proper balance of power between the branches of government" on trade after Trump's recent tariffs.  Meanwhile, in Garamendi, the Supreme Court merely prohibited a state from unilaterally influencing American trade relations.  

As Noeth has written, IISA is an "important step in protecting U.S. sovereignty" against "international bodies with agendas incidental to U.S. interests."  IISA ensures that "state-level policymakers and Congress continue to have the authority to make decisions that best serve their constituents – not international bureaucrats."  American lawmakers should listen to grassroots citizens like her.

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