The American Insurance Association has asked the National Association of Insurance Commissioners' president to urge fellow regulators to reconsider opposition to federal legislation to establish an optional federal charter system for insurers.

Marc Racicot, the president of the AIA, made the request in a letter to Sandy Praeger, Kansas insurance commissioner and current NAIC president, in response to an editorial titled “Federal Bill Unnecessary” that Ms. Praeger placed on the Web site of the Kansas Insurance Department.

Mr. Racicot said in his letter to Ms. Praeger: “I urge the members of the NAIC to reconsider their opposition to the federal legislation establishing an OFC.

“As an industry, insurers need a modern and efficient regulatory structure that reacts quickly to rapid changes in the marketplace and serves our consumers effectively in the most competitive way,” he said. “It is only through a federal charter option that this can be achieved.”

A spokesman for the NAIC in Kansas City, Miss., said Commissioner Praeger has been involved with a conference of commissioners the last couple days and hasn't had a chance to review the letter.

Mr. Racicot, the former governor of Montana, wrote that the AIA has worked “diligently” with individual insurance commissioners and the NAIC in an effort to achieve the necessary reforms for insurance regulation. “Unfortunately, the progress we have made so far has been uneven and has come about much too slowly,” the letter said.

Mr. Racicot also wrote that he felt “compelled” to disagree with several of the points made by Ms. Praeger in her letter.

First, he said, states will not lose revenue through an OFC because premium taxes would continue to be collected by the states in which the premiums are drawn.

“In fact, not only would states be able to maintain the reliable stream of state revenue, but they would also be able to provide new revenues–without raising taxes–for essential state services,” Mr. Racicot said.

Moreover, he added, “it is important to recognize that the proposed federal charter is optional.”

Under the draft legislation, consumers would have the choice and could decide if they would like to purchase a product from a state or federally regulated insurer–the same way consumers choose which type of bank they do business with today, Mr. Racicot said. “Further, each individual state would still maintain oversight of those companies that choose to remain state regulated,” he added.

Mr. Racicot also said that an OFC would not call for the creation of any new federal bureaucracy. Instead, a regulator within the Department of Treasury would be appointed and the regulatory framework would replicate the successful regulatory system that governs nationally chartered banks, he said.

“Additionally, funding for start-up costs of the Office of National Insurance within Treasury would be provided by insurers through assessments,” Mr. Racicot said.

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AIA Urges Regulators Not To Fight OFC

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