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STATE OVERSIGHT PREFERABLE: RAMIREZ

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SAN ANTONIO -- Insurers should be the first to realize that endorsing state regulation is good risk management. And asking for federal oversight is not, according to Jack Ramirez, president of the National Assn. of Independent Insurers.

"State regulation isn't perfect; it can be frustrating at times. But it does do one thing for us," Mr. Ramirez said during an address at the 52nd NAII Annual Meeting in San Antonio. "It spreads the exposure of the industry to the risk of a bad regulatory climate.

"State regulation reduces the chance that an exceptionally bad regulatory climate in a single national jurisdiction will do permanent damage to your business."

Of all industries, "we should understand the need to realistically assess this risk," Mr. Ramirez said.

The NAII continues its fight to preserve state regulation of the insurance industry, fearing federal oversight could put insurers at the mercy of a single, unfriendly agency.

"Is there a risk of bad federal regulation?" Mr. Ramirez asked. "I think most of us would have to say, 'Yes, there is.' "

Despite the NAII's concern, Mr. Ramirez conceded that some insurers have joined the bandwagon for federal oversight. "There's been a push for federal regulation within the industry" based on several premises, he noted.

Some argue that states can't adequately regulate an industry globalizing rapidly, Mr. Ramirez remarked. "The question is not whether we are entering that era; the question is whether we need the federal government to help us do it."

The same holds true for the argument of some that the spreading technology of the Internet and its application to the insurance industry can only be regulated by a federal body, Mr. Ramirez said. "The question is, do we need the federal government and the federal regulation of insurance to make us realize the benefits of the global economy and of global electronic communications?"

"It's also argued that we lose battles in Washington because we don't have a federal regulator who's an advocate for the industry," as do industries such as banking and securities, he added.

But advocates for those industries are fighting different battles than insurers face, Mr. Ramirez emphasized. "Banking and securities are not insurance."

Some argue that the federal government's encroachment into areas of insurance regulation through existing agencies indicates federal regulation is inevitable and "we might as well let it happen," Mr. Ramirez noted.

"Federal regulators, notably the OCC and HUD, and federal courts, have engineered encroachments on state regulation that would not have otherwise been possible through legislation," said Mr. Ramirez. "Moreover, the Republican Congress has demonstrated a penchant of considering legislation that could lead to federal regulation of at least a portion of our business."

Some argue that "we can have the best of both worlds" if a system is created that allows insurers to choose state or federal regulation, he said.

"I think there's a very distinct lack of hard evidence to support these arguments," he said. "On the contrary, I think a great deal is being assumed by the proponents of these arguments."

State regulation is a safer bet because insurers know what they are dealing with, he emphasized. "State regulation exists. It's a reality. We know all about it."

It's uncertain, on the other hand, what federal oversight would bring, he said.

Even if a regulatory scheme favorable to the industry was put into place, there would be no guarantee it would remain, Mr. Ramirez said. "As you know, government goes in cycles," and regulators and regulatory structures are apt to be replaced, he added.

"My question is whether the industry should put all its regulatory eggs in one basket," Mr. Ramirez noted. The ramifications could be severe if a regulator antagonistic to the industry was appointed as a federal insurance regulator, he said.

Federal oversight could just add regulation, Mr. Ramirez suggested. Congress would be unlikely to completely eliminate state regulation, and state regulators could be expected to fight hard to retain some authority.

"Federal regulation is likely to simply add another layer on top of what we already have, creating two levels to overcome instead of one," Mr. Ramirez said.

The insurance industry is in some ways hurting its own cause by industry infighting over regulatory issues, Mr. Ramirez said.

"To a great extent," he remarked, "this debate is a great weakness to the industry. . .As we waste time, energy and resources on what essentially is a civil war," the forces of "unreasonable regulation are making advances."