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

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

Specifically, Rep. Frank said consumer protections would be a key to any proposal as lawmakers will be hesitant to support any legislation that might ultimately do more harm to their political fortunes 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 companies offering a line of coverage in one state also be required to offer different lines they offer elsewhere, or a possible “all perils” policy for property insurance that would include flood exposure.

Rep. Frank said he did not agree with the notion that potential federal consumer protections necessarily needed to be as high as those in the most rigid state, arguing instead that the overall benefit should be considered. It would be acceptable, he said, if citizens of one or two states lose some protections under a federal regulatory scheme, if the same plan raised the level of protection for consumers in 29 other states.

Lawmakers who introduced optional federal charter bills in both chambers during the last Congress also spoke, expressing confidence their legislation would ensure consumers are adequately protected.

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

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

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

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

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

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

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

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