WASHINGTON--Legislation creating an Office of National Insurancecould lead to a dual system of insurance oversight, one critic ofthe proposed federal measure said today.

"Creating an optional federal charter for insurance would leadto dual regulation for the property-casualty insurance industry,"Jimi Grande, vice president, federal and political Affairs for theNational Association of Mutual Insurance Companies said today.

He was responding to the announcement by Rep. Melissa Bean,D-Ill., and Ed Royce, R-Calif., yesterday that they would introducelegislation creating an Office of National Insurance after thePresident's Day recess Feb. 23.

The two legislators said they believe their legislation "canprovide a more effective regulatory regime over insurance that willenhance consumer protections, ensure our capital markets areprotected from systemic threats within the insurance sector, andaddress many of the problems that have resulted from the fragmentedstate-based system."

Their bill would establish a national system of regulation andsupervision for nationally registered insurers, agencies, andproducers. Under the legislation, states would still maintainresponsibility for regulating state licensed insurers, agencies andproducers.

David Sampson, president and CEO of the Property CasualtyInsurers Association of America, charged that the proposedlegislation would "muddy" the need for prompt action on legislationcreating a systemic risk regulator.

At the same time, Charles Symington, senior vice president,government affairs, for the Independent Insurance Agents andBrokers of America, said that, "Based on what we have seen andheard so far, the Bean-Royce legislation is the same old tiredidea, optional federal insurance regulation that has garneredlittle support in past Congresses."

He said that, an OFC is bad for consumers and the insurancemarket, particularly in this time of economic uncertainty; and alittle bit of window dressing is not going to change thatfact."

Mr. Symington added that, "The IIABA and our 300,000 agentsnationwide will continue our strong opposition to thisill-conceived bill."

In his comments, Mr. Grande said that, "It appears the directionRep. Royce and Rep. Bean are heading in will still create anunlevel playing field and possibly lead to a dual regulatoryenvironment of the property-casualty insurance industry."

Mr. Sampson explained that OFC legislation "raises importantissues but fails to address the critical regulatory vulnerabilitiesthat caused the current global financial crisis."

"Systemic risk is clearly the crucial issue that Congress shouldtackle first," Mr. Sampson explained.

"Before overhauling the entire financial services regulatorysystem, it is important to first determine what sectors of themarketplace actually create systemic risk and fix the dangerousgaps in federal oversight," he said.

"The critical need right now, which is crucial to the future ofour economy, is to establish a viable system for systemic riskregulation before refocusing on a decades-old debate over federalinsurance regulation," he added.

Meanwhile analysts at Competitive Enterprise Institute, aconservative think tank in Washington called the proposal a "stepin the right direction, but one with some dangers."

CEI analysts say that the federal government would "gain vastnew powers to oversee the solvency and stability of insurers."

They analyze the bill as allowing small insurers to remainregulated at the state level but larger insurers judged to posepotential "systemic risk" would face a mandate to submit to federalregulation.

They cautioned that under their analysis, nationally regulatedinsurers would still have to participate in state residual marketmechanisms and pay state taxes.

The legislation would also allow insurers to charge actuariallyindicated rates "throughout the country without burdensome,stability enhancing regulation by state authorities," according tothe CEI analysis.

CEI senior fellow Eli Lehrer said the bill is not the same thingas the optional federal insurance charter that he has longsupported. "It's not optional, it's not really federal, and there'sno clear charter," he said, "I wish the proposal went further but,mostly, it still moves things in the right direction," he said.

CEI policy analyst Michelle Minton said the bill raises"significant questions" about the scope of federal regulation thenew bill will mandate.

"While it is likely that all of the largest financial entitieswould already choose federal oversight under any system, thelanguage in this law creates a dangerous ambiguity," she said.

She added that this "ambiguity could potentially harm regulatorycompetition by superseding financial institutions' ability tochoose which option they want."

Ms. Minton also raised questions about a provision in the billthat would place consumer protection offices under the so-calledOffice of National Insurance in all 50 states.

This provision eliminates "some of the greatest benefits thatthe Optional Federal Charter theoretically would have provided,namely, regulatory efficiency and cost savings," she said.

(Arthur Postal can be contacted at [email protected] or 202728-0506)

This article updated 3:35 p.m.