Between extreme views of maintaining the current system of 50-state regulation of insurance and entirely replacing it with a federal one, other speakers at last week’s hearing before the Capital Markets Subcommittee of the House Financial Services Committee took the middle ground, proposing changes to the current system.

J. Robert Hunter, insurance director for the Consumer Federation of America, suggested that the most important factor in regulation of the property-casualty insurance industry is effective enforcement, not whether it is a state or a federal oversight system.

“America’s insurance consumers, including small businesses, are vitally interested in high-quality insurance regulation,” said Mr. Hunter, a former federal and Texas state insurance regulator. “I am sad to say, however, that the quality of insurance regulation is weak and declining throughout the nation today,” he added.

One reason “is the insurance industry has used the possibility of an increased federal role to pressure NAIC [the National Association of Insurance Commissioners] and the states into gutting consumer protections over the last seven years.”

He explained, “This strategy of ‘whipsawing’ state regulators to lower standards benefits all elements of the insurance industry, even those that do not support any federal regulatory approach.

“Even if Congress does nothing, the threat of federal intervention is enough to scare state regulators into acceding to insurer demands to weaken consumer protections.”

Mr. Hunter said CFA would endorse a more uniform national or multistate approach “if certain rigorous conditions were met.” He said he would favor empowering the NAIC to implement a multistate approach “only if the NAIC’s decision-making procedures are overhauled to make it a more transparent, accountable body with meaningful regulatory powers.”

Frank Nutter, president of the Reinsurance Association of America, suggested a single-state “passport” system that would allow a reinsurer to be licensed in and regulated by one state, but with the ability to then “passport” and assume business in all other states.

Another alternative Mr. Nutter advocated was an OFC, which would allow a reinsurer to remain in the 50-state system or obtain a federal charter and be regulated at the federal level.

A third option, Mr. Nutter said, is a modified OFC that allows a reinsurer to choose between a single federal regulator, a single-state regulator, or remain in the current 50-state system.

“The RAA has a strong preference for a modified OFC,” he said.

Texas State Rep. A. Craig Eiland, D-Galveston, who is chairman of the State-Federal Relations Committee of the National Conference of Insurance Legislators, said states are making important regulatory progress. He said progress “has been trivialized by proponents of OFC and other proposed federal measures that would preempt state authority.”