NEW YORK–Lawyers at an insurance seminar for attorneys here hada simple question for state insurance regulators: “Is stateregulation working?” They answered that it was and questioned theneed for any federal involvement.

Joel Ario, Pennsylvania's acting insurance commissioner, led offthe regulators panel during the 18th Annual Current Issues inInsurance Regulation seminar sponsored by the New York City BarAssociation.

Mr. Ario started his comments by noting that in healthinsurance, there are already many state-federal partnerships. Thehealth insurance industry is a “broken marketplace” where the lackof affordable health insurance has created a crisis that can beremedied if states are used as laboratories for change, hesaid.

In order to do this, he added, “Congress needs to get out of ourway a little bit.” For instance, he said Employee Retirement IncomeSecurity Act [ERISA] restrictions need to be loosened so thatstates have more leeway to try new programs.

As an example, he said the power for states to assess or offercredits to employers depending on whether they offer healthcoverage may or may not lie within the 1974 ERISA legislation. “Tome it is absurd that Congress has the power to give to states andleaves it to the courts to decide.

“Access is not only a moral question in the richest country inthe world that ought to be able to cover everyone, but cost is alsoone of the emerging issues.”

Mr. Ario explained that he “never thought [insurance regulation]had to be one or the other”–namely, a choice between state andfederal regulation.

He said life insurers can make the strongest case for federalregulation. But, he continued, the “worst case” is to have thechoice between state and federal regulation because it would resultin an “arbitrage” between the two systems of regulation.

The property-casualty industry is different because products aremore tailored to individual regions, Mr. Ario added.

On the issue of health care, Steven Goldman, commissioner of theNew Jersey Department of Banking and Insurance, noted that “theproblem is the absolutely unsustainable cost of health care. At thecurrent rate it is growing, it would just eat up our economy.”

Costs need to be contained using science and technology, hesaid. “These are parts of the system that are man made,” Mr.Goldman added. The failure to use technology to cut the cost ofhealth care is among “the things that we are doing to ourselves,”he noted.

Eric Dinallo, New York superintendent, gave his reaction to therecommendations in the U.S. Treasury blueprint proposal releasedlast week, which called for a federal insurance regulator and anoptional insurance charter framework for life and p-c sectorsalongside the state-regulated systems.

Mr. Dinallo said “it almost shocked me, and that is from someonewho has had a lot of shocks in the last few weeks.”

“If the federal government wants to wade into car and homeownerinsurance, go right ahead,” he cautioned. He noted the potentialfor companies to play a federal system off of a state-basedsystem.

But, he added, state regulation has a “history ofconsumer-driven oversight.”

“I'm not strongly opposed to federal involvement” in areas suchas reinsurance, but “I am skeptical of the optional part,” he said.Mr. Dinallo pointed out that the insurance industry has notexperienced the turmoil that other financial services sectors haveseen. However, he did add that “we have to do better with themechanics” by continuing to work on projects such as the InterstateInsurance Products Regulation Commission.

When asked whether efforts were being made to eliminate the“49-1″ principle in which New York's regulations were often verydifferent from other states, Mr. Dinallo said he does not mindstanding out if New York regulations make the state “a leader andbring quality [to regulation.]“

However, he noted that in many cases, people did not even knowwhy certain laws were put in place.

The possibility of an optional federal charter addressed in theTreasury Report raises a lot of questions, according to FrancineSemaya, a chair of the insurance, corporate and regulatory practicegroup with the law firm of Cozen O'Connor in New York and aconference organizer.

An OFC would be conceivable with life insurance and reinsurancebusinesses, she said. However, property-casualty insurance is moreregional, she noted.

The change in structure could affect current processes such asholding company registration statements and tax allocationagreements, she added. Consequently, any change in the currentregulatory structure would need to have such details worked out,Ms. Semaya continued.