WASHINGTON–In the latest reaction to a Senate proposal for partial federal regulation of insurance, a consumer group has blasted the measure as a giveaway and an industry group called for modifications.

The comments came following Wednesday's introduction by Sens. John Sununu, R-N.H., and Tim Johnson, D-S.D of an optional federal charter bill for insurers and producers.

Consumer Federation of America's Director of Insurance Robert Hunter called the Johnson-Sununu bill “a 'wish list' of regulatory giveaways promoted for years by large insurance companies that would be extraordinarily harmful to consumers.”

“In the name of regulatory “uniformity” the bill accomplishes the unlikely feat of lowering consumer standards for insurance policyholders below the already weak protections that exist in many states,” Mr. Hunter added. “Meanwhile, it allows insurers to play federal and state regulators off each other in an effort to keep regulatory standards low.”

Mr. Hunter criticized the bill for establishing a federal regulator with what he considered “little, if any, authority to regulate insurance rates and a limited ability to regulate the form of insurance policies, regardless of how uncompetitive the market for a particular line of insurance might be.”

Additionally, he argued that allowing insurers to choose their regulatory structure would prove to be problematic for consumers.

“Consumer organizations strongly oppose an optional federal charter that allows the regulated entity, at its sole discretion, to pick its regulator,” he said. “This is a prescription for regulatory arbitrage that can only undermine needed consumer protections.”

A middle ground approach to the bill was taken by the National Association of Surplus Lines Offices, whose leadership in the past has expressed concern the measure could make it easier for general lines insurers to compete in their sector.

NAPSLO expressed “disappointment” that the bill does not address the concerns of the surplus lines industry.

“Unfortunately, NAPSLO's proposals to solve the current tax remittance and licensing problems of the industry were not included,” in the bill, said Richard Bouhan, executive director of NAPSLO. As a result, he said, the legislation “remains incomplete by not addressing the concerns of the $35 billion surplus lines industry.”

Mr. Bouhan said that NAPSLO would work with Sens. Sununu and Johnson to add their proposals to future versions of the bill.

The group has proposed that companies holding a proposed federal surplus lines license could submit all state premium tax due on a transaction to the home state of the insured for distribution to all states where taxes are due.

“NAPSLO believes that establishing an optional federal surplus lines license would be beneficial to the marketplace,” said Mr. Bouhan. “Those acquiring the license would not have to secure numerous state surplus lines licenses.”

Within the insurance industry, the bill in addition to vehement opponents has its strong supporters including the American Insurance Association which attacked Mr. Hunter for his criticism of the bill yesterday.

Stef Zielezienski, AIA senior vice president and general counsel, called Mr. Hunter, a former Texas insurance commissioner, a believer in “dysfunctional, heavy-handed government price and product controls that distort and wreak havoc on insurance markets.”

He said the act includes many strong protections including federal antitrust laws.

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