IIABA To Congress: Nix On Federal Charter

Another letter signatory is the Agents for Change, a new agents' trade group created with the support of the Financial Services Roundtable, another supporter of an optional federal charter.

AIA and CIAB have both strongly endorsed the State Modernization and Regulatory Transparency Act (SMART) that is being drafted in the Senate.

The OFCC letter was sent to all members of the Senate Banking Committee prior to Thursday's hearing before the House Financial Services Committee on alternative SMART Act legislation creating so-called "federal standards" for state insurance regulation.

That legislation is being drafted by the staff of the House panel and has strong bipartisan support. Although still being drafted, the legislation is expected to be introduced in the House before Congress leaves for its annual August recess.

The letter sent under the aegis of the OFCC said that establishing an optional federal charter would not supplant state regulation or state premium taxation. "The new system would allow insurers and agents to choose between state and federal regulation, similar to the dual-banking system that has been in place for more than 140 years," the letter said.

"The burden of having to comply with rules from 56 separate insurance regulators is too inefficient for companies, agents and consumers to manage, especially those whose interests are national in scope," the letter continued.

"Individual state regulators cannot speak to our national or global interests with the same scope and effectiveness as a strong, federal entity, such as the U.S. Department of Treasury or the Federal Reserve."

The need for modernization, the OFCC noted, is a necessity to successfully compete in today's market. To operate or deliver a product to market, insurers face obstacles such as inconsistent regulations, barriers to innovation, and conflicting agent and education requirements, among others.

Responding to the letter sent by the OFCC, the Big "I" said it "respectfully takes issue" with its conclusions.

"While the letter leaves the impression that many insurance companies support federal regulation, it has been our experience that the vast majority of insurance companies, and an overwhelming number of agents and brokers, oppose an optional federal charter for the insurance marketplace," said Charles E. Symington Jr., Big "I" senior vice president for government affairs and federal relations.

Although the proponents of OFCC say it would not supplant state regulation, the Big "I" believes "such an occurrence would be inevitable, to the detriment of consumers and producers," Mr. Symington said.

In another reaction to the letter to the Senate Banking Committee regarding federal chartering, Robert Hunter, director of insurance at the Consumer Federation of America, warned that the trade group initiative could turn out to be "the death knell for SMART."

Mr. Hunter opposes SMART, and will make such comments during the Thursday House hearing on the bill, primarily because he believes it undermines consumer protection, the primary concern of state regulation. Mr. Hunter is a former Texas insurance commissioner

He analyzed the letter as "pulling the rug out" from under Rep. Mike Oxley, R-Ohio, chairman of the House Financial Services Committee and a key advocate for federal standards regulation as contained in the SMART Act the House Committee is drafting.

Because Rep. Oxley has said he could never support an optional federal charter, "this is a slap at Rep. Oxley after eight weeks of work on SMART," Mr. Hunter said. "The timing is atrocious. 'It sounds like, 'We work with you for eight weeks and then we slap you in the face'. It is remarkable."

Similar comments were voiced by officials of the National Association of Mutual Insurance companies.

David Winston, senior vice president/federal affairs, for NAMIC said in a letter being sent to members of the Senate Banking Committee, "Proposals for federal charters offer few, if any, advantages for consumers, and consumer interests have not been central to the proponents of a federal charter.

"In fact, from a consumer's perspective, the state system of regulation has performed admirably throughout its history," Mr. Winston said. "State insurance regulation has proven to be adaptable, accessible, and relatively efficient, with rare insolvencies and no taxpayer bailouts," he noted.

Joel Wood, senior vice president, government affairs at the CIAB, said he strongly disagrees with Mr. Hunter. "The beauty of the SMART Act is that it bridges the divide between those who philosophically support a federal regulator and those who are very opposed," Mr. Wood said.

The CIAB members, he said. "philosophically support the OFC, whereas the IIABA, for example, strongly opposes. Meanwhile, both of our organizations support SMART, which is evidence that Oxley and Baker have momentum and are ahead of the game."

Mr. Wood explained that, "the art of politics is all about the art of compromise. To the extent that these early discussions push the envelope toward federal regulation among senators, it can only give more momentum to those who are trying to occupy and enact a middle-ground approach."

Insurance industry companies that signed on to the letter include American International Group, Allianz, Allstate, Chubb, John Hancock, MassMutual, Northwestern Mutual, Phoenix Life, the Principal Financial Group, Prudential, St. Paul Travelers, State Farm, Sun Life, the Hartford, W.R.Berkley, Willis Group and Zurich.