Supporters of a federal insurance regulator should startconsidering what kind of price they are willing to pay for theoption in terms of greater consumer protections, the chairman ofthe House Financial Services Committee warned.

Speaking here last week at the Networks Financial Institute'sAnnual Insurance Reform Summit, Rep. Barney Frank, D-Mass., advisedoptional federal charter supporters to “think about what conditionsyou would accept with it, because there will be some.”

Specifically, Rep. Frank said consumer protections would be akey to any proposal as lawmakers will be hesitant to support anylegislation that might ultimately do more harm to their politicalfortunes than good.

“There is a reason why you do consumer protections,” he said.“Because if you don't, people won't vote for you, but if you do,they will.”

Among the possibilities, he noted a requirement that companiesoffering a line of coverage in one state also be required to offerdifferent lines they offer elsewhere, or a possible “all perils”policy for property insurance that would include floodexposure.

Rep. Frank said he did not agree with the notion that potentialfederal consumer protections necessarily needed to be as high asthose in the most rigid state, arguing instead that the overallbenefit should be considered. It would be acceptable, he said, ifcitizens of one or two states lose some protections under a federalregulatory scheme, if the same plan raised the level of protectionfor consumers in 29 other states.

Lawmakers who introduced optional federal charter bills in bothchambers during the last Congress also spoke, expressing confidencetheir legislation would ensure consumers are adequatelyprotected.

Sen. John Sununu, R-N.H., who introduced OFC legislation in theSenate during the last Congress along with Sen. Tim Johnson,D-S.D., said there is “no question that we can provide uniformityof regulation at the federal level,” while maintaining strongconsumer protections.

Sen. Sununu said he intends to introduce a new version of hisbill–most likely in April–and that under his proposal, “the statewould still carry all its powers” to ensure companies follow goodbusiness practices. Additionally, he noted his bill would establisha federal ombudsman to help with consumer complaints.

Rep. Ed Royce, R-Calif.–who introduced the House version of theOFC bill in the last Congress–also said he intends to bring thebill back this year. He said it would contain “a number ofprovisions to ensure that a federal regulator would be on par withother world-class financial services regulators,” such as theSecurities and Exchange Commission and the Office of theComptroller of the Currency.

In many ways, Rep. Royce said he believes the market will proveto be a better regulator than any of the states, but he noted thata federal regulator would have access to more data and be in abetter position to track company practices and industry trends toweed out potential problems.

However, Walter Bell, Alabama's insurance commissioner andpresident of the National Association of Insurance Commissioners,questioned whether a federal regulator's view of the big picturewould distract them from smaller incidents.

While a major event such as Hurricane Katrina can stay on thenational radar for weeks, he said, smaller events such as thetornado that struck Enterprise, Ala., last week tend to fade intothe background after a few days. Mr. Bell said that AlabamaInsurance Department personnel have “been on the ground” since theday of the storm.

“In the state of Alabama, we have been more responsive than anyfederal regulator ever could be,” he added.