Producers Clash On Federal Oversight

In formal statements presented to the subcommittee, the associations agreed on the need for regulatory reform, but parted company on the whether federal regulation is the way to go.

John Van Osdall, chairman of the Washington-based CIAB, said that efforts by state regulators and the National Association of Insurance Commissioners to achieve regulatory reform are "noble and worthwhile."

However, Mr. Van Osdall, who is senior vice president of USI Insurance Services Corp. in Houston, Texas, said he was not even born when NAIC began working on its effort to streamline agent/broker licensing.

"It is extremely difficult for us to imagine a series of achievable state-based reforms in the next several years that would come anywhere close to meeting the challenges of today's international marketplace," he said.

The CIAB believes, he said, that the case has been made for a modern regulatory structure modeled after the largely successful dual banking system.

"Not only would this new structure meet the goals of effective regulation," he said, "but its enactment is also a necessary step in order to assure the competitive viability of our industry relative to other domestic financial services sectors and our international competitors."

Mr. Van Osdall emphasized that any system would be optional. For every complaint lodged against the chartering idea, for every fear of a beastly federal structure, he said, there is one response–the dual-charter banking system.

Concerns over the structure of a federal charter are outweighed by the urgent need for major reform, he said. As long as the charter is optional, and as long as it is paid for by the industry, Mr. Van Osdall said, he believes the details can be correctly worked out.

But Ron Smith, state government affairs chairman for the Alexandria, Va.-based IIABA, called for federal legislation short of optional federal chartering as a means to address state regulatory deficiencies.

"Although heroic efforts have been made to date, state regulators and legislators face the near impossible challenge of addressing and remedying the identified deficiencies unilaterally," said Mr. Smith, a past president of IIABA and president of Smith, Sawyer and Smith, Inc. in Rochester, Ind.

However, Mr. Smith said, while optional federal chartering might correct certain deficiencies, the cost is "incredibly high." The new regulator, he said, would add to the overall regulatory infrastructure, especially for agents and brokers that sell insurance for both state- and federally chartered insurers.

So instead of federal chartering, he said, Congress should consider a third way–use federal tools to establish a more uniform state regulatory system.

He said that IIABA has been working with other trade associations and insurance companies to identify precisely what must be fixed and how it might be done without displacing the present system or adding new layers of government bureaucracy. He said the process has identified four major areas for reform:

? The first is form filing, where a market-based approach similar to that in the state of Illinois is the goal.

? Second is rate approval, where IIABA advocates preemption of state rate approval for competitive markets.

? Third is producer and company licensing, where the goal is to mandate a more uniform system.

? Fourth is market conduct examinations, where IIABA aims to reduce the administrative costs of multiple and duplicative exams.

Mr. Smith said that the problems with insurance regulation are severe, but that federal legislation, not federal regulation, is the answer.