Strife Over Regulatory Reform Road Map Bill

Their concept is not supported by the Democratic minority, which wants a flex-rating system, citing concerns that immediate, total rate deregulation would set the stage for severe price hikes.

A so-called "coalition of the willing"?including the Washington-based American Insurance Association and Council of Insurance Agents and Brokers, as well as carriers interested in establishing an optional federal charter (such as AIG, Allstate and State Farm)?are reportedly putting together a white paper that proposes a compromise that would call for a flex-rating system for three years, which would then convert to a competitive, Illinois-style system.

Another key provision would extend the agent/broker licensing provisions of the Financial Modernization Act (Gramm-Leach-Bliley) from the law's minimum reciprocity standard of 29 jurisdictions to all 50 states. This is designed to deal with the so-called "recalcitrant states," mainly Florida and California, sources said.

"The reality is that while there may be 30-to-34 states that are largely reciprocal, the remainder have add-on requirements that are redundant, duplicative, unnecessary and have nothing to do with standards of professionalism," said one person familiar with the talks.

The draft encourages uniform licensing standards that all the states can adopt. Informed of these plans, Joel Wood, a lobbyist for the Washington-based CIAB, which spearheaded placement of a national licensing fallback provision in GLB, said: "If this is true, this is far better to our members than reciprocity. The CIAB has been actively backing this, because the NAIC accomplishments on uniform licensing, while worthwhile, fall short of matching the reality of the marketplace. It still remains difficult to conduct a business on a multistate basis."

(Under GLB, unless a minimum number of states adopted licensing reciprocity in a given time, a National Association of Registered Agents & Brokers would have been created to issue and administer national licenses. While the minimum benchmark was met, a number of major states remain outside the fold.)

The draft document also calls for the end of the maze of rules governing surplus insurance lines, according to congressional staffers and industry lawyers and lobbyists working intensely to draft the legislation.

Under the surplus lines language, uniform rules and taxation policies would be established by the National Association of Insurance Commissioners within a reasonable period, or else the state where the broker or underwriter is domiciled would get all the premium taxes. "This much-overlooked provision will address the morass of duplicative and conflicting state laws governing surplus lines," one source said.

Mr. Wood, who admitted that his organization has considered suing several states in an effort to reduce the maze of conflicting and expensive surplus lines rules and levies, lamented that "there is no rate and form regulation [of surplus lines]. Every state has different rules governing access to the surplus lines market.

"You have to get declinations from three insurers in order to access the surplus lines market."

However, he noted, there are differing rules on declinations. He added that "there are 50 different state laws with respect to multistate surplus lines premium tax allocations."

According to another source, the draft bill says that unless and until the NAIC develops a uniform allocation system of its own, then the jurisdiction where the insurer is domiciled will get all the premiums.

"That will force the states to develop a uniform system," the source said. "Every broker and every risk manager, every consumer of surplus lines products, will benefit from this. This is one area where the states have simply been unable to get their act together."

The timetable those working on the draft have established calls for a hearing on a finished bill in early September and a vote within the committee later that month.

However, given the pace of work remaining for Congress and the fact it will adjourn early for the presidential election, it is unlikely that the Senate Banking Committee will do more than fulfill the promise of Sen. Richard Shelby, R-Ala., its chairman, to hold a hearing on insurance regulation and competition. But the House bill could form the basis for action next year.