The life insurance industry plans a high profile on Capitol Hill this year in an effort to focus policymakers on its agenda, which includes an optional federal charter and a broader array of retirement products.The lobbying effort will include "fly-ins" by company CEOs and other high-level executives to speak to administration officials and key members, briefings and interview opportunities, and introduction of legislation supportive of industry interests. Also to be disclosed shortly is establishment of an "insurance caucus" by members of Congress with great interest in insurance issues.

The plan is designed to interest Congress in passing legislation that will improve the attractiveness of the industry's tax-advantaged retirement products this year, and raise the issue of an optional federal charter to the level where the industry will win a commitment for it to be dealt with early in the next Congress.


Reflecting an apparently widely held industry position, Merle Pederson, who is group vice president of government relations for Principal Financial Group, Des Moines, Iowa, says unequivocally, "No reform is unacceptable."

A proposal by the Kansas City, Mo.-based National Association of Insurance Commissioner that basically would allow companies given approval to sell a product by one state to sell that product in other states is currently stalled. That's because many state regulators do not want to see their authority diminished to larger states such as New York, Pennsylvania, California and Texas.

"If it takes a year or more to get a product to market, that is a huge cost," The Principal's Pederson explains. "This poses more of a cost than regulatory compliance. That cost, while a concern, is dwarfed by the cost of delay in getting products to market on a timely basis. That needs to be addressed sooner rather than later."

The industry's concerns have been voiced over several years. But the difference this year appears to be that while the industry has relied on the Washington, D.C.-based American Council of Life Insurers (ACLI) to be its public face, setbacks on such issues as estate taxes, and dividends on stocks paid into annuities have apparently forced insurance officials to testify directly to Congress.

Besides The Principal, other life insurance companies going public on the issue include Aegon, Mass Mutual and Lincoln National.

The industry position was outlined in an ACLI letter sent to Rep. Richard Baker, R-La., the head of a key subcommittee of the House Financial Services Committee. The letter explained in detail how the current proposals to modernize the present system wouldn't work.

It also rejected the proposal being advanced by the agents' lobbies, creating a series of "key federal standards" that would be left to the states to enforce. The belief is that states would be unable to enforce them "in a uniform and consistent manner."

Basic principles

The letter outlines the basic principles of its model legislation for an optional federal charter, and discusses the shortcomings of competing approaches to regulatory modernization as advanced by state legislators, state insurance regulators and agents' groups.

"We are not seeking to be regulated differently than other industries or to avoid necessary regulatory oversight in areas such as corporate governance," the letter states. "In fact, we are simply asking that insurance be regulated like other industries, without the state government's 'command and control apparatus' that has been adopted in the name of 'consumer protection', but which has prevented consumers having the strong voice that a market-based system provides."

But a contrary view was voiced by one of the key players, Robert Rusbuldt, president of the Independent Insurance Agents and Brokers of America, Washington, D.C. Rusbuldt says the industry shouldn't expect much in the way of insurance regulatory reform this year. He insists on the viability of its federal standards proposal, a proposal that the agents insist would be enforced by the states.

"Our proposal will be Congress passing national standards that would apply to every state with no deviation," he says. "The states will have to enforce the standards, but there will be no federal bureaucracy."

Rusbuldt adds that he does not see any federal charter option proposal passing Congress, as it would likely entail the creation of a bureaucracy that, while it may not rival the current 11,000-strong state oversight army, would certainly require a sizable new force to carry out the job.

In addition, any new federal oversight program will bring with it the likelihood of the kind of add-on items that are anathema to the industry, such as increased privacy regulation, HUD anti-redlining provisions and Community Redevelopment Act requirements, he adds.

But Rusbuldt sees rate and form uniformity for the P&C industry, and product review nationalization for the life industry as the most logical first steps for movement toward federal involvement.

For example, he explains, the federal standards program could take any number of forms, including a single proposal to impose 50-state reciprocity on agent licensing in place of the current system that big states such as California and Florida have refused to take part in, or the omnibus approach that would create a 21st Century version of the McCarran-Ferguson Act.

Arthur D. Postal is Washington, D.C.-based bureau chief and Steve Tuckey is New York-based editor for Insurance Chronicle, a Thomson Media publication.

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