The chair of the Senate Banking Committee cautioned last week that while "the 101st senator--that's the clock"--is emerging as a huge hurdle, he suggested that historic legislation might yet be passed this year that would begin the process of creating a greater federal role in insurance regulation.

Sen. Chris Dodd, D-Conn., made his comments at a hearing before his committee on the status of insurance regulation. (See related story on page 6.)

At the same time, House floor action on the Insurance Information Act of 2008 (H.R. 5840) and the National Association of Registered Agents and Brokers Reform Act (H.R. 5611) was delayed until September.

H.R. 5840 would create an Office of Insurance Information within the Treasury Department, while H.R. 5611 would set up a streamlined system for producer licensing.

Action was delayed after Rep. Jackie Speier, D-Calif., voiced concerns about whether the legislation would inadvertently preempt laws approved via Proposition 103, a 1988 ballot initiative that mandates a prior approval auto insurance rating system for her state, while rolling back rates.

Sen. Dodd said he would be "very interested" in moving forward "with something along the lines that would be narrower" than an optional federal charter.

Specifically, that would include the legislation creating an OII, as well as H.R. 1065, the Nonadmitted and Reinsurance Reform Act, which the House passed overwhelmingly in 2007. H.R. 1065 would set national standards for regulation of surplus lines and reinsurance.

Similar legislation was introduced in the Senate by Sen. Mel Martinez, R-Fla., and Sen. Bill Nelson, D-Fla., as S. 929 in late February 2007, but it has not yet been acted on in the Senate.

Given that neither the OII nor surplus lines/reinsurance bills have been acted on by the Senate Banking Committee, a lobbyist cautioned that "they will only have a couple of weeks to put together such a deal."

Sen. Dodd made it clear he understands time is not on his side. "Once that 101st senator shows up, things get very, very difficult to move forward on," he said. "But I appreciate the importance of a couple of these issues that I think there is some consensus on."

He added that he would like to do a survey of his committee. "My sense is they may be willing to move on some of this that we have talked about this morning, so I will have to get back to you all on that, as I ask my staff to review with their colleagues the possibility of trying to get something done before we adjourn in September."

At the hearing, Republican Senators Richard Shelby of Alabama (the committee's ranking minority member and one of the most powerful members of Congress on insurance issues) and Sen. Bob Corker, in his first term from Tennessee, both said they were open to support an optional federal charter, although Sen. Corker did voice some concerns.

Sen. Shelby noted his growing interest in an OFC in his opening statement, saying that in the two years since the committee's last hearing on insurance, "developments in our insurance markets, as well as regulatory reforms abroad, have strengthened the case that our insurance regulatory structure is out of date."

He cited as an immediate concern developments in the "crumbling" bond insurance market. "Because the financial problems of the bond insurers have impacted not only federally regulated institutions but also our overall economy, I believe that closer scrutiny of bond insurance regulation by this committee is warranted," he said.

He also cited insurance company investment in mortgage-backed securities, noting that while no insurance company "has yet failed during the turmoil in our credit markets, recent economic history suggests that should never be considered outside the realm of possibilities."

Meanwhile, Sen. Mel Martinez, R-Fla., a sponsor of legislation reforming regulation of surplus lines and reinsurance, told National Underwriter outside the hearing that Sen. Dodd's comments marked the first time the chair had indicated an interest in moving insurance regulatory legislation through Congress this year. "Yes, I am encouraged," Sen. Martinez said.

Sen. Dodd acknowledged in the hearing that "a few years ago, even the notion of a federal charter would have been met with vehement opposition. It was the third rail."

However, he again sought--both in his explicit comments and in questions to industry, state regulatory and consumer representatives--to clarify the differences between life and property-casualty insurance, and whether life insurance lent itself more to federal regulation than did property-casualty.

"I have always felt a case could be made for an OFC for life, but that you can make a very good case that, when it comes to p-c, there are distinctions in tort law," Sen. Dodd explained.

Meanwhile, the author of legislation creating an Office of Insurance Information last week urged colleagues to pass the bill, saying it is needed to give the federal government "a credible source of information and expertise on insurance matters."

Rep. Paul Kanjorski, D-Pa., in a "Dear Colleague" letter said his measure "does not change the regulation of insurance and does not take sides in the state-versus-federal regulation of insurance debates."

The National Association of Professional Insurance Agents, however, said in a letter that it disagrees with Rep. Kanjorski's interpretation, adding that H.R. 5840 has become a bill "enabling federal insurance regulation."

Rep. Kanjorski, who chairs the Capital Markets Subcommittee of the House Financial Services Committee, said in his letter that "parties on both sides of the [OFC] issue have offered support for my bill"--under which, he explained, the director of the OII will collect and analyze data, as well as issue reports to Congress.

The OII will also "establish federal policy on international insurance matters and ensure that state insurance laws are consistent with agreements between the U.S. and a foreign jurisdiction with regard to such federal policy," he said.

He admitted that to promote federal trade policy, the Treasury Department will have "the ability, under very limited circumstances and very detailed procedures, to preempt a state insurance measure that is inconsistent with an agreement regarding the policy made between the U.S. and a foreign jurisdiction." However, he added, "the preemption will only be used as a last resort."

Additionally, Rep. Kanjorski said, "the legislation does not upset the current process of negotiating international agreements, but seeks to provide a unified voice of advice to whoever the lead negotiator is."

But PIA President Robert Page argued in a statement that "this bill has been misleading from the outset," charging that the "title of the bill is a misnomer, and the rhetoric of its supporters is designed to conceal what is really going on here."

Mr. Page said the legislation is "part of a coordinated push by advocates of federal insurance regulation to sweep away opposition and advance their agenda in a disingenuous manner."

PIA's president-elect, Kenneth Auerbach, characterized the bill as "a federal power grab."

"This is no longer a bill that is only about creating an insurance information office," he said, contending that the current version "would effectively lay open to review and approval by the secretary of the Treasury the laws and practices of all 55 United States jurisdictions in most matters relating to insurance." He added that "people have been encouraged to read the bill more narrowly than this."

If that is the case, he said, "then PIA wants the actual language in the bill to articulate that narrowness. The current language provides the power to determine which state laws, regulations and industry practices will be preempted, without any proper legislative authority acting to do so."

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