The bill, introduced last week in the Senate, would turn oversight of the industry on its head, while gutting much of the state-based regulatory system that has basically worked for so long.

What has Uncle Sam done lately to prove himself worthy of such a challenge? The National Flood Insurance Program has been shamefully mismanaged. Congress had to be dragged into approving extension of the Terrorism Risk Insurance Act, and cannot come to grips with asbestos liabilities.

Critics contend that state insurance regulators were asleep at the wheel while major carriers and brokers rigged bids and abused contingency fee deals, leaving it up to New York Attorney General Eliot Spitzer to expose the wrongdoing and protect policyholders. That's essentially true, but just because state regulation hasn't been perfect doesn't mean the feds would have done any better.

Indeed, there is a legitimate concern that had the players involved in the scandals been federally-chartered, Mr. Spitzer might have been stymied in his quest–or at least delayed in jurisdictional disputes.

I have had my problems over the years with the way state regulation has handled certain situations, and the National Association of Insurance Commissioners is the slowest-moving organization I have ever seen.

That's why I believe if Uncle Sam insists on elbowing his way into insurance regulation, the House approach is preferable. The so-called SMART (State Modernization and Regulatory Transparency) Act would set federal standards for state regulators. This would maintain the best of the state system (its local focus) while mitigating the worst (its inability to achieve uniformity in critical areas).

Many insurance commissioners and the NAIC think SMART is actually a pretty dumb idea, and they haven't been shy about saying so–much to the chagrin of the bill's sponsors. Their position is that the status quo, with all its faults, is better than anything the feds could impose. Perhaps they are right.

However, if the move in the Senate to create an optional federal charter gains momentum, those opposing SMART might think twice. There is no question SMART beats OFC for anyone who backs state oversight.

But just like 20 years ago, the split within the industry might make this debate moot. The American Insurance Association and the Council of Insurance Agents and Brokers are sky high on the OFC bill. The Independent Insurance Agents and Brokers of America, along with the National Association of Mutual Insurance Companies, are violently opposed.

That factor alone could doom the Senate legislation as the various lobbying titans battle it out on Capitol Hill. That would be fine with me.