Federal legislation modernizing the insurance industry's oversight system and calling for an end to rate regulation will once again be introduced this spring in the House and Senate, although neither body's approach is likely to be passed anytime soon, congressional staffers say.

Indeed, those staffers attending the Third Annual Insurance Summit here last week voiced doubt that action on such legislation could occur this year. The huge differences in viewpoints voiced by those at the Summit indicate that bridging the gaps and broadening the role the federal government plays in insurance regulation--if any--could still be years away.

For example, industry lobbyists, congressional staffers and Rep. Paul Kanjorski, D-Pa., ranking minority member of the House Financial Services Committee's Capital Markets Subcommittee, all made clear that teeing the issue up for prompt action in the next Congress was all that was likely to be accomplished. That will include hearings on the issue before the Senate Banking Committee, a committee staffer said.

However, based on comments by those attending, the bills to be introduced in each house of Congress will be materially different, and there is disagreement as to the appropriate approach toward federal regulation between Democrats and Republicans in the House.

Moreover, in comments at the summit, Maine Insurance Superintendent Alessandro Iuppa, president of the National Association of Insurance Commissioners, said reform was needed but federal involvement would create more problems than it would solve.

The NAIC attitude and apparent decision not to cooperate with its bill-writing efforts doesn't sit well with the leadership of the House Financial Services Committee.

Although Glenn Westrick, counsel to the leadership, spoke before Mr. Iuppa, he made clear that the House Financial Services Committee had become impatient with the NAIC's strong criticism of its draft legislation, and its seeming unwillingness to work with the committee to fashion a bill acceptable to both industry and regulators.

"Simply saying 'no' to any reform action is not an option. The regulatory system is in dire need of reform," he said, calling the current system "inefficient," and contending that it "needs greater transparency and greater coordination."

The Treasury Department made clear it isn't ready to take a position. Emil Henry Jr., assistant secretary for financial institutions at the agency, declined to indicate what, if any, federal insurance bill the Bush administration would support.

Moreover, J. Kevin McKechnie, associate director of government relations for the American Bankers Insurance Association--which is spearheading the effort for legislation creating an optional federal charter--raised another issue.

Questioning Mr. Iuppa, Mr. McKechnie contended that state regulators had increased the rate of market conduct exams for insurers whose officials had testified on the OFC issue before Congress. Mr. Iuppa denied there had been retaliation, and went on to "commit" himself on behalf of the NAIC to a policy of no retaliation against insurers for supporting federal regulation.

Mr. Iuppa said he "recognized that market conduct is not where it should be," but added that should change as the number of states--now 26--that have joined an interstate compact on the issue expands.

The Senate's regulatory reform bill will call for creation of an optional federal charter for both life and property-casualty insurers, said Jamie Burnett, legislative director to Sen. John Sununu, R-N.H., primary sponsor of the Senate bill, along with Sen. Tim Johnson, D-S.D.

The Senate bill will call for creation of an independent federal regulator within the Treasury Department, similar to that of the Office of the Comptroller of the Currency.

Gary Hughes, executive vice president and general counsel of the American Council of Life Insurers, said later during the Summit that one advantage of the Senate bill is the system will have no impact on the federal budget. He said the cost of federal regulation would be covered by insurer fees--the same system used by national banks.

Under the plan, Mr. Burnett and Mr. Hughes said, the state guaranty fund system would remain in place--presumably with the states serving as liquidators for an insolvent federally-chartered insurance institution.

In the House, legislation will be introduced calling for creation of federal "standards" or "tools" designed to bring uniformity to state regulation. The legislation--dubbed the State Modernization and Regulatory Transparency (SMART) Act--has been in the works for several years.

The House bill also includes language calling for an end to rate regulation, according to Mr. Westrick, majority counsel on the House Financial Services Committee. Primary sponsors are the committee's chair, Rep. Mike Oxley, R-Ohio, and Rep. Richard Baker, R-La., who chairs the Capital Markets Subcommittee.

Charles Symington, senior vice president of government affairs and federal relations at the Independent Insurance Agents and Brokers of America, voiced support for SMART as providing an incentive for appropriately modernizing the state regulatory system.

However, he said independent agents oppose creation of an optional federal charter for a number of reasons, including the fact it would "have a deleterious impact on consumers," and make it more difficult for agents to get answers from regulators.

Of particular concern to agents, he said, is that creation of an optional federal charter could require agents to be licensed by both state and federal regulators, because agents would be dealing with insurers regulated by the states as well as those regulated by the federal government.

Richard M. Bouhan, executive director of the National Association of Professional Surplus Lines Offices, said an optional federal charter "doesn't address our issues." He said it doesn't help surplus lines carriers and brokers overcome the "inconsistencies in the state system," adding that, "it is our view that the SMART Act would be a better approach."

Mr. Bouhan also said that, to his mind, "someone must address how the new law will benefit the consumer."

In his comments, Mr. Hughes dismissed as a "red herring" claims by state regulators that the ability of states to tax insurers would be reduced if an optional federal charter system was adopted. "That just doesn't hold water," he said. National banks pay state taxes, and all proposals for an OFC make clear that state taxing authority will not be impacted, he noted.

Meanwhile, language calling for rate deregulation is not being supported by Democrats on the House committee. Rep. Kanjorski made clear at the meeting that he will "not support" a provision in such legislation eliminating state rate oversight, although he said he is open to modification of current rules. Rep. Barney Frank, D-Mass., ranking minority member of the full committee, has also voiced concerns about provisions ending the ability of states to regulate rates on p-c products.

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