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NO ESCAPING FEDERAL OVERSIGHT

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WASHINGTON-Like it or not, various forms of federal regulation of insurance are here and unlikely to go away.

That was the message of a panel of experts at the 10th annual insurance information services conference, held in Washington last week and sponsored by A.M. Best Co. of Oldwick, N.J.

Despite the contention of some observers that the Republicans' 1994 sweep of Congress ended the debate over federal vs. state regulation, the federal role remains quite significant, albeit limited, said the panelists.

However, because insurers don't have an identifiable federal regulator, unlike other industries, they can find themselves at a competitive disadvantage politically when presenting their case in Washington, said one panelist.

"Federal regulation is here. Foreign regulation is here. State regulation is here. Local regulation is here," said John B. Chesson, president of Oversight-Results.Com, a Falls Church, Va.-based consultant. Mr. Chesson was counsel to the House Subcommittee on Oversight and Investigations during the early 1990s and was staff author of the subcommittee's two reports on the insurance industry, "Failed Promises" and "Wishful Thinking," both of which questioned the effectiveness of state insurance regulation.

Mr. Chesson said that federal regulators both regulate and act as advocates for the industries they oversee.

Banks, for example, have a powerful ally in Federal Reserve Board Chairman Alan Greenspan, Mr. Chesson said. Insurers lack such an advocate, though, in such battles as in the current legislative debate over expanding banks' insurance powers, he said.

"The bankers hold all the cards," with at least three well-financed regulators presenting their interests, said Mr. Chesson.

Insurance is "always going to be in the political arena," he said. "Insurance is a public policy business. Nobody I know buys it because they like it."

"I think there's a big gap between the rhetoric of the insurance industry and the reality," said Joel Wood, vp-government affairs for the Council of Insurance Agents & Brokers in Washington.

Although many in the insurance industry are adamant in their belief that insurance is a state-regulated business, insurance in fact is governed by a mixed regulatory system. Federal regulation is indirect yet significant, said Mr. Wood.

Mr. Wood offered a list of examples of how the federal government regulates insurance. They include the Employee Retirement Income Security Act, the Risk Retention Act, the federal flood and crop insurance programs and other initiatives, he said.

He added that some Republicans now are considering creating a national "auto choice" plan to guarantee that drivers can lower their insurance rates by embracing a no-fault system.

Although Republicans generally prefer keeping regulatory powers at the state level, they can be convinced that there's a federal regulatory role "if you make cases there are business efficiencies involved," said Mr. Wood.

"It is evident to me that the way the business is regulated is going to change," said Linda S. Kaiser, former insurance commissioner of Pennsylvania.

Part of the reason for the change will be continued integration of the financial services industry, said Ms. Kaiser, now senior vp, general counsel and secretary of Reliance Insurance Co. in Philadelphia. The question is when and how the change will come about, she said.

"Change is inevitable, but we need to be deliberate in our analysis and debate," she said.

Leslie W. Hann, senior associate editor of Best's Review, moderated the discussion.