Federal bill Harmful to IL Insurance Consumers

Springfield, IL - Director of Insurance Nat Shapo is alerting Illinois consumers that they could lose valuable regulatory safeguards over their insurance transactions if financial services legislation advancing through Congress is successful.

"We fear that H.R. 10 would exempt insurance business conducted by national banks and their insurance company affiliates from nearly all state consumer protection and solvency laws, with no federal regulatory scheme to fill the void," Shapo said. "If that happens, thousands of Illinois citizens would have nowhere to turn when there's a problem with their insurance coverage."

"Not only could H.R. 10 prohibit state regulators from enforcing market conduct laws that protect consumers from sales, underwriting and claims practice violations, it could preempt our jurisdiction over the financial transactions of bank-affiliated insurers. Without adequate financial oversight, consumers would have no assurance that the companies they buy insurance from will be able to deliver on their promises," he said.

"If Congress strips the states of their consumer protection powers, the result for Illinois citizens could be much the same as the "black hole" created by federal ERISA laws," Shapo warned. "This time, however, that hole could widen to include auto, homeowners, life, disability and annuity products, among others."

"The language in H.R. 10 so strongly favors preemption that it sets up state regulators to be losers in court challenges to our jurisdiction," Shapo said. "One need only look at federal ERISA laws which removed more than fifty percent of all health care insurers from state insurance regulation to see the courts' bent towards preemption."

The National Association of Insurance Commissioners (NAIC) estimates that state insurance departments receive more than 350,000 consumers complaints and 13.5 million consumer inquiries annually. Collectively, state insurance departments employ 10,000 dedicated public servants who devote all or most of their professional attention to assisting consumers. In Illinois, the Department of Insurance handles over 14,000 consumer complaints and 70,000 general inquiries each year.

Among the thousands of cases where the Department of Insurance successfully intervenes on behalf of consumers are these examples:

• An Illinois homeowner disputed his insurance company's settlement offer following a fire loss. The Department's review resulted in an additional payment of $4300.

• An Illinois man's insurance company denied his auto insurance claim on the basis that he had canceled the policy prior to the loss. The Department determined that the company had failed to obtain a written request for cancellation and required them to pay the $14,000 claim.

• An agent convinced an Illinois woman to replace two life insurance policies valued at $14,127 with a $15,000 whole life policy providing a 20 year annuity, but costing nearly twice as much. The Department deemed the sale inappropriate because the income from the annuity was offset by the higher premium and the insured could have annuitized one of her older policies to generate an income. The company reversed its position and reinstated the two older policies.

• An Illinois home buyer purchased a credit life and disability policy believing that his mortgage would be fully covered. When he became permanently disabled, the company cited language in the policy limiting coverage to 24 months. However, the certificate he received contained conflicting information. The Department ruled that the insured was misled because of inadequate disclosure and the company agreed to pay benefits for the duration of the loan.

"H.R. 10 poses a very real threat to the dozens of consumer protection laws and regulations that allow us to correct those types of problems," Shapo said. "The nation's insurance commissioners have responded with a series of amendments presented to the U.S. House Commerce Committee on May 5. Illinois fully supports the NAIC's efforts to address the serious regulatory deficiencies in H.R. 10. Without those amendments, the pending legislation serves to dismantle a decades long system of insurance regulation, but provides no alternatives for consumer protection at the federal level. The elimination of any avenue for consumer advocacy would be disastrous for the insurance buying public."