Federal Chartering Seen As Longshot

Washington

Insurance regulatory reform will be a high priority issue for the House Financial Services Committee next year, but optional federal chartering–known as OFC–is seen as a longshot.

Rather, industry representatives say, the committee is likely to consider alternative approaches to reform, such as federal minimum standards, before seriously examining OFC.

Allen Caskie, chief counsel for federal relations with the American Council of Life Insurers in Washington, which supports OFC, said that at the outset a lot will depend on the amount of progress made by the Kansas City, Mo.-based National Association of Insurance Commissioners on its reform agenda (see related stories, pages 14 and 16).

NAIC, Mr. Caskie noted, is still working on developing an interstate compact, but the effort has bogged down. It is still not clear how this will play out, he said.

Rep. Mike Oxley, the Ohio Republican who chairs the House Financial Services Committee, “is willing to give states plenty of time to work out the problem areas,” Mr. Caskie said. “But if there is no interstate compact, [Rep.] Oxleys instinct will be to look at a NARAB approach.”

NARAB, which stands for the National Association of Registered Agents and Brokers, is a feature of the Gramm-Leach-Bliley Act. It gives states a defined period of time to harmonize their agent licensing requirements. If the requisite number of states fail to act, a national organization would be created to streamline the agent licensing process.

Maria Berthoud, senior vice president of federal affairs for the Alexandria, Va.-based Independent Insurance Agents & Brokers of America, which opposes OFC, also anticipates Congress will do something other than create a new federal bureaucracy. “Congress does not have the appetite to enact a complete change in the insurance regulatory system such as OFC,” she said.

However, Ms. Berthoud added, there is wide agreement that something has to be done to provide a more streamlined and uniform system. IIABA, she noted, is working with insurance company partners to develop a proposal that accomplishes the goal of uniformity without federal regulation. Ms. Berthoud said the effort is about 85 percent complete.

But David Farmer, senior vice president of federal affairs for the Alliance of American Insurers in Downers Grove, Ill., said he does not believe that any legislation, whether OFC or federal minimum standards, has much of a chance next year. The states, he said, are making changes, and the heart of these changes is greater freedom from rate and form regulation.

Mr. Farmer said the Alliance would like to see insurance modernization succeed at the state level. (He noted that his comments are strictly related to the property-casualty industry. The life insurance industry, he said, faces an entirely different situation from their p-c counterpart.)

If anything has a chance of moving next year, it would be a life insurance-only OFC proposal, Washington observers say.

Julie Gackenbach, assistant vice president of government relations with the Des Plaines, Ill.-based National Association of Independent Insurers, added that people on Capitol Hill understand the differences between life and p-c carriers, adding that there is a lot of sympathy for the plight of life insurers.

(Life insurers call regulatory reform a “survival issue” for the industry, because investment-oriented life products compete directly against products offered by banks and securities firms.)

The question, she said, is whether the supporters of OFC will be willing to push for a life insurance-only plan, possibly as a fallback position.

Mr. Caskie emphasized that ACLI is not pushing for a life insurance-only bill. ACLI is working in a coalition with the American Insurance Association, the American Bankers Association and the Securities Industry Association, all based here in Washington, for a comprehensive OFC bill.

“We want the broadest support possible,” Mr. Caskie said.

It is possible, however, that someone will introduce a bill that would implement OFC on a line-by-line basis, he said.

“It is conceivable that at some point, a life-only bill may surface,” Mr. Caskie said.

Indeed, during the hearings in the 107th Congress on insurance regulatory reform, a senior member of the committee–Rep. Paul Kanjorski, D-Pa.–frequently questioned industry witnesses about a line-by-line approach to OFC that could include life and large commercial p-c risks.

Monte Ward, vice president of federal affairs for the National Association of Mutual Insurance Companies in Indianapolis, said Congress will certainly look at lines that might be more suited for OFC.

However, he said, he believes it is too early in the game to begin singling out particular lines. Right now, Mr. Ward noted, supporters of OFC seem to think they are better off standing together.

While all this is going on at the House Financial Services Committee, it is unclear whether the Senate Commerce Committee, which has jurisdiction over insurance, has any interest in this issue.

Mr. Ward said that the committees chairman next year–Sen. Richard Shelby, R-Alabama–has different concerns, particularly privacy, and is not focusing on insurance regulation.

Mr. Caskie said that something the supporters of OFC need to do is to reach out to Sen. Shelby to discuss this issue. He noted that in the 107th Congress, two leading Democrats–Sens. Chris Dodd, D-Conn., and Charles Schumer, D-N.Y.–were both interested in taking the lead on OFC.

As of now, Mr. Caskie said, with Republicans poised to assume control of the Senate, OFC supporters need to identify someone to take the lead, and Sen. Shelby is the logical starting point.

Still, he said, insurance regulation seems to be high on the agenda of Rep. Richard Baker, R-La., who chairs the relevant subcommittee of the House Financial Services Committee, and he hopes to see the issue move early on the House side, possibly in the spring.

Ms. Gackenbach said that the committee will produce a report based on a roundtable discussion on insurance regulation that the committee sponsored this fall. Once the report is issued, she said, there will probably be follow-up hearings and possibly another roundtable.

There will be moves to go to OFC at that point, Ms. Gackenbach said, but the focus will be on changes at the state level.

Ms. Gackenbach added that she does not believe the recently concluded debate over terrorism insurance will necessarily affect the OFC issue.

One issue that arose from the debate over terrorism insurance was an understanding that there is not a great deal of expertise at the federal level on the insurance business, she said.

However, Ms. Gackenbach said, while the Treasury Department is acquiring that expertise, this does not mean that Treasury wants to regulate the insurance industry.

“Treasury is committed to not creating a new bureaucracy,” she said.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, December 8, 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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Federal Chartering Seen As Longshot

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