As Washington continues to grapple with the fallout from the financial market meltdown, momentum is building among key power brokers on Capitol Hill for the establishment of a federal charter option for at least some insurance industry segments.

Among the most recent developments:

o Rep. Barney Frank, D-Mass., chair of the House Financial Services Committee, voiced support for an OFC--especially for life insurance.

o Rep. Melissa Bean, D-Ill., and Rep. Ed Royce, R-Calif., announced separately that they are retooling their legislation--which would create an OFC for all insurers--and hope to have their bill introduced in the House within several weeks.

o Sen. Tim Johnson, D-S.D., and Don Kohn, vice chairman of the Federal Reserve Board, both cited an OFC as an approach that should be explored. Their separate comments came at a Senate Banking Committee hearing on the latest federal bailout of American International Group.

o The National Association of Mutual Insurance Companies said while it remains opposed to an OFC for property-casualty insurers, it will not stand in the way of an OFC system for life insurers because it is "a different industry with different regulatory requirements."

o Allstate Chairman and Chief Executive Officer Tom Wilson called for a federal charter for insurance.

In his comments, Rep. Frank said it is "overwhelmingly likely" that House Democrats will move to create an OFC for life insurers.

Rep. Frank said one of the factors has been requests from European regulators and insurers for a more simplified approach to U.S. insurance regulation. "Because of our European allies' concerns, we will have to think about doing an optional federal charter for life insurance," he said.

However, he expressed reservations about approving a federal charter for personal lines property-casualty insurers--especially laws preempting state rate regulation.

Rep. Bean made her latest comments at the annual Insurance Reform Summit presented by the Networks Financial Institute at Indiana State University. She said her bill will include provisions requiring a physical presence for a federal Office of Insurance Information that would regulate national insurers in each state.

The bill also would create a systemic risk regulator with the authority to oversee insurance firms defined as "systemically important." Rep. Bean said the scope of the proposed systemic risk regulator's authority is still under discussion--as is the definition of the term, "systemic risk."

Rep. Ed Royce, R-Calif., who plans to co-sponsor an OFC bill with Rep. Bean, noted that Federal Reserve Chair Ben Bernanke had expressed frustration with the ability of AIG to "exploit a huge gap in the regulatory system." Rep. Royce argued that such a "regulatory gap must be filled by a world-class federal regulator for insurance."

"The various state insurance regulators simply do not have the ability to oversee massive global financial firms like AIG," according to Rep. Royce.

He added that taxpayers have "a vested interest in the ability of this Congress to establish a world-class regulatory alternative to the fragmented 50-state system overseeing the insurance market."

At the Senate Banking Committee hearing on AIG, Sen. Johnson said that "for many years I have advocated for a modernized system of federal insurance regulation," adding that "I am even more convinced after the past six months that our current, outdated state-by-state regulatory system is ill-equipped to deal with a 21st century insurance company."

He went on to say that the country "cannot afford another situation like AIG, and we must ensure that our regulators can assess the risks across all financial services, including insurance."

Fed Vice Chair Donald Kohn, when asked his view as to whether there is a need for federal insurance regulation, replied "that's something that should be considered as part of the overall look at regulation."

However, "I think my first priority would be to get some umbrella regulator--some overall regulator for every systemically important institution, wherever that might be," he added. "But the federal charter is an option you should be looking at, I think...and we must ensure that our regulators can assess the risks across all financial services, including insurance."

Meanwhile, NAMIC President Charles Chamness elaborated on comments he made during a panel discussion at the Insurance Reform Summit.

Mr. Chamness said NAMIC supports creation of an Office of Insurance Information within the Treasury Department, because "we believe there is a need for the federal government to have more information on our industry, particularly in times of current crisis or post-9/11, and because certain international trade issues cannot be addressed by state regulation."

However, as for not opposing an OFC for life insurers while continuing to reject one for property-casualty, he said he was just reiterating an existing NAMIC position.

"While we don't represent the life industry, our board believes there were significant differences in the arguments of the life industry compared to the property-casualty industry on regulation," he said.

Specifically, he said, life insurance is a financial services industry that competes with the banking and securities industries on sale of a variety of investment products.

The issue is important because Rep. Frank said he would support an OFC for life companies but not for personal lines p-c carriers.

Mr. Chamness sees significant differences between p-c and life companies, since p-c "is inherently local and geographic, because the risk is essentially local and geographic." He added that each state's unique tort laws and even the way state courts interpret contract law are critical considerations for the p-c industry, making national regulation more complicated than it would be for the life business.

However, he said NAMIC does support a reformed system of state insurance regulation. "And we are making progress," he added, noting that "22 states in the last five years have enacted rate reform--our highest priority."

"But more reform is needed...and many of the criticisms of state regulation are legitimate--too much price regulation, too redundant, too inefficient," he added.

Allstate CEO Wilson, in a speech before the Capital Markets Summit held by the U.S. Chamber of Commerce in Washington, said a federal charter would "allow strong consumer protections and uniform regulation across states that would lower administrative costs and improve access to new and innovative products."

"The United States has the most sophisticated capital markets in the world, with the most competitive and innovative financial instruments. Yet our system for regulating them is a Depression-era hodgepodge. We need real regulatory reform, better oversight and greater transparency," he said.

Federal regulation of insurance, he added, should take place within the context of creating a comprehensive regulatory framework, which ensures "that middle-income consumers can create more secure economic futures and better manage the financial risks that are a part of everyday life."

He explained that the U.S. financial services sector "has the potential to become a real agent for change."

"As leaders, we have to do more than just talk about restoring confidence. We must reexamine the way risk is shared between government, business and the American people," he said.

On another federal insurance legislative issue, Rep. Spencer Bachus, R-Ala., ranking minority member of the House Financial Services Committee, said he would support legislation modernizing and reforming the surplus lines industry. His remarks came at the same meeting where Rep. Bean outlined what would be included in her OFC bill.

Rep. Bachus was more vague when asked for his view on an OFC, saying he would support a more incremental approach to insurance regulatory reform.

At the same time, Rep. Bachus indicated a measure of support for legislation creating an Office of Insurance Information within the Treasury, a bill proposed last year by Rep. Paul Kanjorski, D-Pa., chair of the House Capital Markets Subcommittee. The bill passed the House last September.

Special Reports /

Optional Federal Charter Momentum Builds, Especially For Life Insurers

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