Proponents of federal insurance regulation have moved one step further toward their goal. Two bills have been introduced in Congress that would establish a new federal agency to charter insurance companies choosing to bypass the cumbersome state-by-state system.In December, U.S. Senator Charles Schumer (D-N.Y.) proposed the National Insurance Chartering and Supervision Act. Then, in February, U.S. Representative John LaFalce (D-N.Y.) introduced the Insurance Industry Modernization and Consumer Protection Act. Both bills respond to lobbying from banking and insurance groups that want a simplified regulatory structure for licensing insurance companies.
Checkerboard state regulations
Large companies selling insurance internationally, nationwide and on the Internet are hindered by the checkerboard of state regulations, according to proponents of a dual state-federal regulatory system for insurance-similar to the one that exists for banking.
The state-by-state approval process makes it difficult to launch insurance products quickly, they argue, which they claim is a competitive issue, especially since the Gramm-Leach-Bliley Act in 1999 dismantled the barriers between insurance companies, banks and brokerages.
"We're behind the eight-ball in terms of product innovation," says Herb Perone, spokesperson for the American Council of Life Insurers (ACLI). "We can innovate as quickly (as banks and brokerages), but we can't get approval as quickly." The ACLI claims that while banks can get new products to market in a matter of weeks and securities firms in three or four months, it takes insurers a year or two because of state approvals.
Organizations in favor of a dual regulatory system for insurance include the ACLI, the American Bankers Insurance Association (ABIA) and the American Insurance Association (AIA). All three Washington, D.C.-based groups introduced model bills last year for a federal charter option for insurance companies.
Both the Schumer and LaFalce bills are based largely on the ABIA and the ACLI models, calling for the creation of a new bureau within the U.S. Treasury Department that would license national insurance companies and be headed by a national commissioner or director.
Both bills also would make insurance fraud a federal crime. But the bills differ in several significant ways (see "Comparing Two Bills," page 12).
Opposing views
Although the industry in general supports modernization of the insurance regulatory system, several groups believe improvements should occur through improving the state-based system.
In particular, they support uniformity of producer licensing, mandated by Gramm-Leach-Bliley, as well as uniformity of company licensing and streamlining rate and form approvals across the states.
The Alliance of American Insurers called for delay of consideration of the LaFalce bill, immediately after it was introduced, noting that Congress needed to focus on terrorism insurance legislation first and foremost.
In addition, states need sufficient time to implement reforms required under Gramm-Leach-Bliley before Congress adds new layers of bureaucracy and regulation, according to Ken Schloman, Washington counsel for the Downers Grove, Ill.-based Alliance.
Insurance agent groups in particular are critical of the dual regulatory approach. The National Association of Professional Insurance Agents (PIA), in Alexandria, Va., for example, opposes an optional federal charter as functionally unworkable, noting that insurance risk is highly territorial, that insurance contracts fall under the jurisdiction of state law, and that state oversight better protects policyholders.
The Independent Insurance Agents Association (IIAA) also opposes an optional federal charter.
"IIAA strongly believes that Congress should build on, rather than dismantle, the current state-based system," says Robert Rusbuldt, CEO. IIAA proposes using "federal tools," such as national standards, national reciprocity and multistate uniformity to improve state regulation.
Not much attention
Because it's an election year, and the growing Enron scandal, terrorism insurance and budget issues are the overriding concerns in Congress, industry observers say it's unlikely that legislation for a federal insurance charter will receive much attention in Congress this year.
"There's a lot going on," says ACLI's Perone. "It's fair to say an optional federal charter is not a fast-track issue."
The ACLI continues to work closely with the National Association of Insurance Commissioners, Kansas City, Mo., as well as with state commissioners, to modernize the existing state system, he says. "Clearly, that's going to be the only game in town for awhile-even if the initiative for an optional federal charter is successful."
Since an optional federal charter involves a significant restructuring of insurance regulation, the ABIA has always assumed that it will be a multiple-year process, says Beth Climo, ABIA director. "But we're further along than we might have expected to be at this point," she says. "And that's very positive."
