P-C, Life Groups Urge Governors To Back OFC

WASHINGTON--Representatives of two large insurance trade groups asked the National Governors Association yesterday to reconsider opposition to optional federal charters for insurers and support legislation creating a regulatory system similar to the federal/state system that regulates banks.

In their letter, leaders of the American Insurance Association and American Council of Life Insurers cite the competitive advantages of an OFC, while reassuring the governors that the legislation, as introduced this year in both houses of Congress, "will allow states to collect premium taxes on insurance transactions just as they do today."

The letters were signed by Marc Racicot, president of the American Insurance Association, and Frank Keating, president and CEO of the American Council of Life Insurers.

It was sent to Tim Pawlenty, Republican governor of Minnesota, who is chairman of the National Governors Association.

The last NGA policy statement on the issue was made in October 2006 in conjunction with the National Conference of State Legislators.

It was issued in response to legislation introduced in the Senate that would create an optional federal charter. The bill has since been reintroduced in the new Congress.

The 2006 letter said the two groups oppose the bill because it would "radically restructure the current system of insurance regulation by installing a new federal regulator, creating a massive new federal bureaucracy in Washington, and permitting insurance companies to 'opt out' of comprehensive state oversight and policyholder protection."

It argued that "states are better positioned than the federal government to balance the interests of U.S. insurance consumers with that of commercial competition."

But the letter from Mr. Racicot and Mr. Keating contends that, "The success of the insurance industry, a major revenue producer for state governments, depends on the existence of a modern and efficient regulatory system that reacts quickly to rapid changes in the marketplace and provides efficiencies and convenience to customers."

And, the letter added, "The insurance regulatory reform legislation under consideration on Capitol Hill in both the House and Senate provides for such a system."

The letter cited support for such a regulatory system from a McKinsey & Co., study sponsored by Sen. Charles Schumer, D-N.Y., and New York City mayor Michael Bloomberg, as well as from a separate study on capital markets commissioned by the U.S. Chamber of Commerce.

"As former governors, we have the utmost respect for the role of states in the nation's political and economic landscape," the letter said. Mr. Racicot was governor of Montana and Mr. Keating governor of Oklahoma.

"We have spared no efforts in working with the states to advocate for needed reforms of insurance regulation," the letter said. "But, while there has been some progress, it has come about much too slowly."

The letter also says that the stimulus provided by an OFC system can help states accomplish their goal of reforming the insurance regulatory system. "An OFC system will encourage states to achieve long-delayed uniformity and thus make state charters an attractive alternative to a federal charter," the letter said.