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Federal charter issue returns to Congress

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Federal charter issue returns to Congress

WASHINGTON—The cosponsor of a bill that would allow insurers and brokers to seek federal rather than state regulation hopes to get the measure approved by the Senate Banking Committee by the end of the year.

During a Capitol Hill news conference last week, Sen. John Sununu, R-N.H., called getting the National Insurance Act through the committee "very realistic."

The measure, which he and Sen. Tim Johnson, D-S.D., introduced last week, would allow both property/casualty and life insurers to be chartered by federal authorities, much as banks can choose either state or federal regulation. The measure, which closely tracks a bill introduced by the two lawmakers in April 2006, would allow the federal chartering and licensing of national insurance agencies. Unlike last year's bill, the National Insurance Act also would apply to surplus lines insurers.

Current law allows only state chartering of insurers, a situation proponents of the optional federal charter say limits consumer choice and puts U.S. insurers at a competitive disadvantage. "There is no reason why this country's insurance industry, its agents, brokers and consumers they serve should be hamstrung by a system of regulation that is redundant, inefficient, burdensome, complicated and costly," Sen. Johnson, who is recovering from a stroke, said in statement.

During the news conference, Sen. Sununu said the Bush administration has not endorsed the new bill, although administration officials spoke "positively" about last year's measure during banking committee hearings in 2006. He said he expected the committee to hold one or two hearings on the new measure later this year.

The idea of an optional federal charter has the backing of the New York-based Risk & Insurance Management Society Inc.

"RIMS has long supported the concept of an optional federal charter and we look forward to reviewing this bill to determine if we can support this specific bill or recommend any specific enhancements," said Terry Fleming, director-external affairs for RIMS and director-division of risk management for Montgomery County in Rockville, Md.

The insurance industry, however, remains divided, splitting along familiar battle lines.

A producer group welcomed the bill as a step in the right direction.

"There is plenty of room for a civil debate over the pluses and minuses of this kind of legislation," said Joel Wood, senior vp with the Council of Insurance Agents & Brokers in Washington. "Indeed, there are unknowns about a radically altered insurance regulatory system. But this we do know—the optional federal charter works very well in the commercial banking arena. This cannot be argued. That is the basis of this legislation, and Sens. Johnson and Sununu are brave and thoughtful leaders, who should be commended for taking these steps."

"Ultimately, this bill is going to be enacted so that regulation of the insurance industry can catch up with the realities of the global insurance marketplace. I would argue that this is a battle not at all dissimilar to the decades-old banks-in-insurance debate. Those who seek to protect themselves from competition may have the political ability to delay the inevitable, but the national marketplace will drive this legislative result," said Mr. Wood.

"We strongly support the legislation because it would bring about a market-oriented regulatory system for insurers," said a spokesman for the American Insurance Assn. in Washington. "The market would regulate rates and products as opposed to the current system of state-regulation of rates and products. Ultimately, consumers benefit," he said.

However, the National Assn. of Mutual Insurance Cos. does not share that view, and opposes any optional federal charter.

"We think that regulation is better accomplished at the state level where companies and their consumers have better access to their local regulators," said Justin Roth, senior federal affairs director in NAMIC's Washington office. "I think small and medium-sized commercial policyholders would have a difficult time dealing with an additional layer of federal bureaucracy."

Mr. Roth also disputed the contention of the bill's supporters that the federal system would be more streamlined and efficient than the current system.

"I think by the time this legislation, which was just introduced, goes through the wringer of Congress, it might more likely look like a California-style regulatory system than an Illinois-style regulatory system," he said. Illinois has received praise from the industry for its free market-driven approach to regulation.

"This bill shows us that the possibility of federal intervention in insurance regulation is for real," said a spokesman for the Property Casualty Insurers Assn. of America, which has not taken a position on the bill. "It's our hope that the reintroduction of this legislation will spur the states to modernize their regulatory environment."