As Washington continues to grapple with the fallout from thefinancial market meltdown, momentum is building among key powerbrokers on Capitol Hill for the establishment of a federal charteroption for at least some insurance industry segments.

Among the most recent developments:

o Rep. Barney Frank, D-Mass., chair of the House FinancialServices Committee, voiced support for an OFC--especially for lifeinsurance.

o Rep. Melissa Bean, D-Ill., and Rep. Ed Royce, R-Calif.,announced separately that they are retooling theirlegislation--which would create an OFC for all insurers--and hopeto have their bill introduced in the House within severalweeks.

o Sen. Tim Johnson, D-S.D., and Don Kohn, vice chairman of theFederal Reserve Board, both cited an OFC as an approach that shouldbe explored. Their separate comments came at a Senate BankingCommittee hearing on the latest federal bailout of AmericanInternational Group.

o The National Association of Mutual Insurance Companies saidwhile it remains opposed to an OFC for property-casualty insurers,it will not stand in the way of an OFC system for life insurersbecause it is "a different industry with different regulatoryrequirements."

o Allstate Chairman and Chief Executive Officer Tom Wilsoncalled for a federal charter for insurance.

In his comments, Rep. Frank said it is "overwhelmingly likely"that House Democrats will move to create an OFC for lifeinsurers.

Rep. Frank said one of the factors has been requests fromEuropean regulators and insurers for a more simplified approach toU.S. insurance regulation. "Because of our European allies'concerns, we will have to think about doing an optional federalcharter for life insurance," he said.

However, he expressed reservations about approving a federalcharter for personal lines property-casualty insurers--especiallylaws preempting state rate regulation.

Rep. Bean made her latest comments at the annual InsuranceReform Summit presented by the Networks Financial Institute atIndiana State University. She said her bill will include provisionsrequiring a physical presence for a federal Office of InsuranceInformation that would regulate national insurers in eachstate.

The bill also would create a systemic risk regulator with theauthority to oversee insurance firms defined as "systemicallyimportant." Rep. Bean said the scope of the proposed systemic riskregulator's authority is still under discussion--as is thedefinition of the term, "systemic risk."

Rep. Ed Royce, R-Calif., who plans to co-sponsor an OFC billwith Rep. Bean, noted that Federal Reserve Chair Ben Bernanke hadexpressed frustration with the ability of AIG to "exploit a hugegap in the regulatory system." Rep. Royce argued that such a"regulatory gap must be filled by a world-class federal regulatorfor insurance."

"The various state insurance regulators simply do not have theability to oversee massive global financial firms like AIG,"according to Rep. Royce.

He added that taxpayers have "a vested interest in the abilityof this Congress to establish a world-class regulatory alternativeto the fragmented 50-state system overseeing the insurancemarket."

At the Senate Banking Committee hearing on AIG, Sen. Johnsonsaid that "for many years I have advocated for a modernized systemof federal insurance regulation," adding that "I am even moreconvinced after the past six months that our current, outdatedstate-by-state regulatory system is ill-equipped to deal with a21st century insurance company."

He went on to say that the country "cannot afford anothersituation like AIG, and we must ensure that our regulators canassess the risks across all financial services, includinginsurance."

Fed Vice Chair Donald Kohn, when asked his view as to whetherthere is a need for federal insurance regulation, replied "that'ssomething that should be considered as part of the overall look atregulation."

However, "I think my first priority would be to get someumbrella regulator--some overall regulator for every systemicallyimportant institution, wherever that might be," he added. "But thefederal charter is an option you should be looking at, Ithink...and we must ensure that our regulators can assess the risksacross all financial services, including insurance."

Meanwhile, NAMIC President Charles Chamness elaborated oncomments he made during a panel discussion at the Insurance ReformSummit.

Mr. Chamness said NAMIC supports creation of an Office ofInsurance Information within the Treasury Department, because "webelieve there is a need for the federal government to have moreinformation on our industry, particularly in times of currentcrisis or post-9/11, and because certain international trade issuescannot be addressed by state regulation."

However, as for not opposing an OFC for life insurers whilecontinuing to reject one for property-casualty, he said he was justreiterating an existing NAMIC position.

"While we don't represent the life industry, our board believesthere were significant differences in the arguments of the lifeindustry compared to the property-casualty industry on regulation,"he said.

Specifically, he said, life insurance is a financial servicesindustry that competes with the banking and securities industrieson sale of a variety of investment products.

The issue is important because Rep. Frank said he would supportan OFC for life companies but not for personal lines p-ccarriers.

Mr. Chamness sees significant differences between p-c and lifecompanies, since p-c "is inherently local and geographic, becausethe risk is essentially local and geographic." He added that eachstate's unique tort laws and even the way state courts interpretcontract law are critical considerations for the p-c industry,making national regulation more complicated than it would be forthe life business.

However, he said NAMIC does support a reformed system of stateinsurance regulation. "And we are making progress," he added,noting that "22 states in the last five years have enacted ratereform--our highest priority."

"But more reform is needed...and many of the criticisms of stateregulation are legitimate--too much price regulation, tooredundant, too inefficient," he added.

Allstate CEO Wilson, in a speech before the Capital MarketsSummit held by the U.S. Chamber of Commerce in Washington, said afederal charter would "allow strong consumer protections anduniform regulation across states that would lower administrativecosts and improve access to new and innovative products."

"The United States has the most sophisticated capital markets inthe world, with the most competitive and innovative financialinstruments. Yet our system for regulating them is a Depression-erahodgepodge. We need real regulatory reform, better oversight andgreater transparency," he said.

Federal regulation of insurance, he added, should take placewithin the context of creating a comprehensive regulatoryframework, which ensures "that middle-income consumers can createmore secure economic futures and better manage the financial risksthat are a part of everyday life."

He explained that the U.S. financial services sector "has thepotential to become a real agent for change."

"As leaders, we have to do more than just talk about restoringconfidence. We must reexamine the way risk is shared betweengovernment, business and the American people," he said.

On another federal insurance legislative issue, Rep. SpencerBachus, R-Ala., ranking minority member of the House FinancialServices Committee, said he would support legislation modernizingand reforming the surplus lines industry. His remarks came at thesame meeting where Rep. Bean outlined what would be included in herOFC bill.

Rep. Bachus was more vague when asked for his view on an OFC,saying he would support a more incremental approach to insuranceregulatory reform.

At the same time, Rep. Bachus indicated a measure of support forlegislation creating an Office of Insurance Information within theTreasury, a bill proposed last year by Rep. Paul Kanjorski, D-Pa.,chair of the House Capital Markets Subcommittee. The bill passedthe House last September.