NU Online News Service, Apr. 2, 3:49 p.m.EDT

Legislation to impose some federal regulation on insurers andcreate a federal insurance charter mechanism has been introduced bytwo House members who said the American International Groupmeltdown underscores the need for their measure.

In unveiling their National Insurance Consumer Protection Act,Rep. Melissa Bean, D-Ill., and Rep. Ed Royce, R-Calif. saidnumerous bipartisan reports have called for insurance regulatoryreform.

Rep. Royce also noted that the federal government is alreadyheavily invested in insurance–an industry it has no regulatoryauthority over.

Insurance trade groups were split on the measure some calling atboon to international trade and praising optional federal charter,while critics called it a convoluted and costly proposal.

According to a fact sheet distributed by Reps. Bean and Royce,the bill would establish a "parallel, national system of regulationand supervision for insurers, insurance agencies, and insuranceproducers, similar to the dual banking system."

Regulated entities would be able to choose national or stateregulation, the fact sheet noted, unless the national commissionerand a newly-created systemic risk regulator determine an insurer is"systemically important," in which case they could require theinsurer to be nationally regulated.

An Office of National Insurance (ONI), responsible for issuingcharters for life, property-casualty, and reinsurance companies, aswell as producers, would be created within the Treasury Department,with a commissioner appointed by the president for a five-yearterm, subject to Senate approval.

The commissioner would be charged with examining insurers,agents and brokers every two years and in response to a complaintor evidence of violation of a law or regulation. The commissionerwould have enforcement powers patterned after those available tofederal banking agencies.

Additionally, state and national commissioners would have toshare information with a systemic risk regulator, who would be ableto make "corrective action recommendations" to the national andstate commissioners, "to take action to mitigate or avoid actionstaken by an insurer or affiliate that would have serious adverseeffects on economic conditions and financial stability."

The systemic risk regulator would have the authority in certainsituations to circumvent an insurance regulator in "emergencycircumstances."

The bill would also set up a Division of Consumer Affairs, whichwould in turn establish offices in each state to act upon questionsand complaints.

Reaction among the insurance industry was varied, with someoptional federal charter supporters praising the bill's intentionsbut raising concern about some of the particulars.

The Council of Insurance Agents & Brokers (CIAB), theAmerican Bankers Association (ABA), the American Bankers InsuranceAssociation (ABIA), and the Financial Services Roundtable expressedsupport for the bill. The associations all stated that an OFC willhelp simplify international regulatory cooperation for larger,national companies.

The ABA and ABIA noted recent statements by Federal ReserveChairman Ben Bernanke and Treasury Secretary Timothy Geithnersupporting an OFC.

Leigh Ann Pusey, president of the American Insurance Association(AIA), also supported the bill, noting that AIA has long supportedan OFC.

However, the bill calls for a National Insurance GuarantyCorporation, while also requiring national insurers to participatein state guaranty associations, and Ms. Pusey said she believesconsumers would be best protected under a single guaranty fundsystem.

The Property Casualty Insurers Association of America (PCI) saidCongress should train its focus on systemic risk, rather than firsttrying to overhaul the entire financial regulatory system.

David A. Sampson, PCI's president and CEO said, "The reason thatdiscussion of an optional federal charter should not be part of thesystemic risk debate is that it falsely presumes that only largecompanies pose a systemic risk. In fact, smaller companies can posesignificant systemic risk, and larger companies may pose little ornone."

He added an OFC also concerns only one industry, while systemicrisk reaches across all financial services industries.

Cliston Brown, PCI spokesman, issued a PCI response to the billby e-mail stating, "PCI believes the states have not reformed thecurrent regulatory system into a model that effectively facilitatescommerce in the 21st century. To modernize, we support reformingthe state-based system, but where the states continue to fail tomake needed improvements, we may consider other approaches ifproven necessary to the creation of a fair, effective and efficientbusiness environment."

The National Association of Mutual Insurance Companies (NAMIC)opposed the bill. Jimi Grande, NAMIC vice president for federal andpolitical affairs, said, "This convoluted legislation would createa huge new bureaucracy that would have broad, ambiguous powers. TheONI, as described in the legislation, would create multiple layersof regulation leading to confusion and higher costs forconsumers."