The property and casualty industry in general supports creatinga federal insurance office, according to testimony last week beforeCongress. But the devil is in the details, with the sector splitover how much power and responsibility to give such a body.

Trade groups representing large insurers as well as reinsurersvoiced support for a strong agency with broad powers under H.R.2609–the Federal Insurance Office Act. But smaller insurers,independent agents and state insurance regulators asked that thescope of the agency be restricted.

Therese Vaughn, chief executive officer of the NationalAssociation of Insurance Commissioners, said her members wouldsupport creation of the FIO, as long as it had a limited roleinvolving international agreements and systemic risk, and leftsolvency issues to the states.

"We fully support the goal of creating a national insuranceoffice as a resource for the federal government and a conduit forthe states, but we will strongly oppose any efforts to use such anoffice as a precursor to establishing a federal insuranceregulator," Ms. Vaughn said in testimony before the House FinancialServices Committee on capital markets regulatory reform.

She added that NAIC support for the new office is "predicated onthe notion that the office be a tool to connect the stateregulatory system with the federal regulatory system, and not be aninstrument to diminish state insurance regulation."

She also noted that earlier versions of legislation creating afederal insurance office "made clear that the office would notcreate a supervisory role over insurance at the federal level, andwe urge inclusion of identical language into any finallegislation."

The bill was introduced by Rep. Paul Kanjorski, D-Pa., chair ofthe Capital Markets Subcommittee of the House Financial ServicesCommittee.

In his opening statement, he said the bill would "providenational policymakers with access to the information and resourcesneeded to respond to crises, mitigate systemic risks and helpensure a well-functioning financial system."

He added that the credit meltdown highlighted the lack ofexpertise within the federal government regarding the insuranceindustry, especially during the collapse of American InternationalGroup and last year's turmoil in bond insurance markets.

"My bill would rectify these shortcomings and promote stabilityin our insurance markets," he added.

Rep. Kanjorski said that even those who oppose a federalinsurance regulator would have to acknowledge the federalgovernment needs some methodology to deal with systemic risk,calling the AIG developments "almost a complete disaster."

Even though AIG's property and casualty insurance companies(since rebranded as Chartis) were not involved, he said, recklesscredit default swaps by parent company AIG's Financial Productsunit nearly prompted "the largest insurance financial disaster inthe history of our country. We can't afford to let that happen inthe future."

Stef Zielezienski, senior vice president and general counsel ofthe American Insurance Association–a supporter of federalregulation–said that "while the discussion draft does not create anational functional insurance regulator, the FIO, if structuredcorrectly, would represent a substantial contribution towardbroadening and deepening our nation's understanding of the criticalrole of insurance in our national system."

David Atkinson, executive vice president of the ReinsuranceGroup of America, representing the Reinsurance Association ofAmerica, said reinsurers "strongly support" the legislation,stating that the bill "lays the foundation to ensure that thefederal government" has the authority to gather information so ithas a more thorough understanding of the complexities of insuranceand reinsurance issues and how policy decisions may affect thesemarkets.

He added that the draft legislation also gives the federalgovernment the authority to coordinate federal efforts andestablish national policy on global insurance matters, as well asthe right to enter into international insurance agreements and theauthority to preempt state insurance measures inconsistent withsuch cross-border deals.

However, reflecting the views of smaller insurers, JaniceAbraham, president and CEO of United Educators Insurance,testifying on behalf of the Property Casualty Insurers Associationof America, said that "while we have not taken a position onproposals to create an office of insurance information, our membershave concerns and questions about a greatly expanded federalinsurance oversight office."

"We're not broke, we didn't cause the financial crisis, and wedon't need a new federal oversight that may ultimately increasecosts for consumers," she added.

The National Association of Mutual Insurance Companies said itsmembership "continues to have serious concerns" about the bill.

"Any measure that could be used to set different standards fordifferent companies runs the risk of distorting the market andultimately harming consumers," said Jimi Grande, senior vicepresident of federal affairs for NAMIC. "NAMIC believes that anOffice of Insurance Information as proposed by the original billwould provide the federal government with the information it needswithout affecting the market or establishing a de-facto federalinsurance regulator."

Spencer Houldin, president of Ericson Insurance, aConnecticut-based agency, who testified on behalf of theIndependent Insurance Agents and Brokers of America, said, "IIABAstrongly supports state insurance regulation and would oppose anyefforts to undermine that system."

However, he added, "we recognize the benefits that can beachieved by establishing a non-regulatory body at the federal levelthat is able to review industry data, advise federal officials oncritical insurance issues and coordinate efforts on internationalinsurance matters."

He called it "imperative, however, that any statute authorizingthe establishment of an insurance information office be designedcarefully and with proper safeguards, and not set the stage forfederal insurance regulation."