In July, the Washington-based American Insurance Association put forth its proposal for property-casualty companies.

In December, U.S. Senator Charles Schumer, D-N.Y., took the industry and others by surprise when he introduced his proposal for a National Insurance Chartering and Supervision Act even as Congress struggled with terrorism backstop legislation.

All of the proposals call for the creation of a federal insurance regulator position within the U.S. Treasury Department.

ACLI: The ACLI proposal would establish an Office of National Insurers which, among other things, would be authorized to issue regulations governing insurers that choose the federal charter system. The ONI also could issue licenses for “federal producers” who sell insurance on a national basis.

In the Executive Summary of its proposal, the ACLI stated that the two main goals are “effective solvency regulation and appropriate consumer protections.”

Under the ACLI proposal, federally chartered insurers could “underwrite and sell in any state, any line of insurance for which they hold a federal license.”

The director of ONI could promulgate regulations limiting the types of federal insurance licenses that a national insurer could hold. The director also would set standards for accounting and auditing, investment requirements and limitations, as well as asset valuation and risk-based capital requirements.

The ACLI proposal also provides a mechanism for ensuring that states do not lose tax revenues when state insurers elect to become national insurers.

Further, the ACLI plan contains a “National Insurer Solvency Act” which addresses solvency and receivership issues.

ABIA: According to a statement by the ABIA, insurance companies would be able to choose which regulator best suits their operational needs.

However, in the view of the ABIA, “a single federal insurance regulator would simplify regulatory compliance requirements and stimulate the development of uniform products,” as has been the case in the two-tier banking system.

As envisioned by the ABIA, the Office of the National Insurance Commissioner would be patterned after two other Treasury bureaus. One is the Office of the Comptroller of the Currency, which charters and regulates national banks, and the other is the Office of Thrift Supervision, which charters and regulates federal savings and loans institutions.

Under the ABIA proposal, federal law would govern the establishment, solvency, regulation and market conduct of federally chartered insurers. State law would govern insurance contracts but not rates and forms. (Indeed, the ABIA proposal also would not permit the national insurance commissioner to regulate rates or forms). ABIA would not allow the national regulator to exempt federally chartered companies from U.S. antitrust laws.

The supervisory standards set by the national insurance commissioner would include capital, liquidity, investment and lending requirements, as well as accounting and valuation standards.

The ABIA proposal also calls for optional federal chartering of insurance producers that sell insurance on a national or global basis.

AIA: The AIA proposal calls for creation of a Federal Insurance Chartering Office.

An insurer with a federal charter under the AIA proposal would be broadly authorized to “engage in any activity that constitutes the business of insurance” as well as in incidental activities. The insurer would not have to obtain a state license or charter to engage in any authorized business or activity in any state.

The AIA proposal includes a list of state insurance laws that would not be preempted by the federal charter, including those calling for participation in assigned risk plans or other mandatory residual market mechanisms, as well as liability for state and local taxes.

The Schumer Plan: Sen. Schumers proposal, applicable to both life and property-casualty insurance companies, would create an Office of the National Insurance Commissioner.

His legislation also would provide for the chartering and licensing of federal insurance producers, with national insurance agencies being required to obtain federal producer licenses.

For five years, the bill also would subject national insurance companies to the National Association of Insurance Commissioners' model regulations on risk-based capital, reserve requirements and accounting standards.

National insurance companies would have annual independent audits and annual actuarial analyses under the Schumer bill.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, January 28, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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