WASHINGTON—The next few weeks could be critical ones for regulatory reform of the financial services industry, some insurance market observers say.

But many believe that some version of the Restoring American Financial Stability Act of 2010, which passed the Senate Banking, Housing and Urban Affairs Committee last week on a 13-10 party line vote, ultimately will win Senate approval. The measure, drafted by the committee's chairman—Sen. Christopher Dodd, D-Conn.—focuses mainly on noninsurance financial institutions. It does, however, include provisions that would streamline the regulation of surplus lines insurers, create an Office of National Insurance within the Treasury Department to provide insurance expertise to the federal government, and require large financial institutions to establish risk committees including at least one risk management expert.

That provision in particular drew praise from the New York-based Risk & Insurance Management Society Inc., which issued a statement last week saying that “RIMS has long been a proponent of such a measure and applauds the committee's decision to include it.”

Observers expect the full Senate to take up Sen. Dodd's bill after lawmakers return from their recess early next month. The House passed its version of financial services regulatory reform in December.

“None of the major players are predicting hard timelines, although it seems clear that Sen. Dodd envisions this as a priority for the Senate after the recess,” said Leigh Ann Pusey, president and CEO of the American Insurance Assn. in Washington.

“My sense is that they are very serious about trying to get the bill done. I think Republicans are open to getting a good bill done and, from that standpoint, I think the key time frame will be from mid-April to the Memorial Day recess. If there's progress then, we'll certainly have a better feel for whether or not we'll have a final product,” Ms. Pusey said.

Joel Wood, senior vp of the Council of Insurance Agents & Brokers in Washington, said while he considers the April-May period critical, “having learned my lessons from a hundred missed deadlines on health reform, I don't think it's absolute. It's the highest priority for Democratic leaders, and I think they'll do whatever's necessary to muscle it through.”

“The conventional wisdom is that any legislation that is not completed by July 4 isn't going to get passed with the exception of the budget bills and some of the must-pass legislation, which this might be,” said Ben McKay, senior vp in the Property Casualty Insurers Assn. of America's Washington office. “My sense that that they're going to work out the outstanding issues in the next month or month and a half and we'll see a bill at least pass out of the Senate” in May.

“The Senate is the Senate and you always have to worry about the lack of procedural rules on massive pieces of legislation,” said Mr. Wood. “I think everyone worries about the clock. But on the other hand, it's March. This is the next big issue as soon as reconciliation is complete. I think Sen. Shelby is right—agreement already exists on 85% of what is in this reform package,” he said, referring to the Banking Committee's top Republican, Sen. Richard Shelby, R-Ala.

“I'm very optimistic they'll work out the remaining 15%,” Mr. Wood said.

“We're hearing that Chairman Dodd would like to see major progress in getting the bill to the Senate floor when Congress returns from their Easter recess,” said Charles Symington, a senior vp with the Alexandria, Va.-based Independent Insurance Agents & Brokers of America. “With their shortened calendar in an election year, obviously they want to get this done sooner rather than later; and at this point, I think that chances of this bill becoming law are very good.”

Jimi Grande, senior vp in the National Assn. of Mutual Insurance Cos.' Washington office, played down the importance of timing.

“I don't think the calendar is nearly the challenge that most make it out to be,” he said. “This is a really important piece of legislation. They're going to find time to get this on the floor if they think they can get it done.”

“I do think it's got a fairly good chance of becoming law, not in the exact form that it looks like today, but with more changes,” said Mr. Grande. “It appears more than a handful of willing negotiators” among Republicans would try to strike a bipartisan deal.

Mr. Wood said backers of the surplus lines reform legislation have much at stake in the Senate action. “After seven years of effort, we are as close as it's ever been,” he said. “And this may be the last significant opportunity for us to achieve this reform.”