Attendees at the 12^th Annual PricewaterhouseCoopers executive life insurance conference here had a range of opinions on the value of a system of 50 state insurance departments.

Given the option, 80 percent of attendees who were electronically polled during the session said they would opt out of state regulation in favor of a federal charter if given the opportunity.

Related questions dealt with the value of the Coordinated Advertising Rate and Form Review Authority, a pilot NAIC initiative designed to create a single point of filing for products.

Eighty-eight percent of attendees said that their companies or companies that they represented had not used CARFRA. However, 88 percent also responded the program should be expanded.

When asked about the most important issue tied to state regulation, 24 percent cited speed-to-market issues; 20 percent, the cost of regulation; 29 percent, uniformity of regulation; and 27 percent, a level playing field in the financial services arena.

The issue of cost was one that Joan Zief, managing director of Goldman Sachs & Co., New York, cited during her discussion of insurance regulation. "State regulation is detrimental from a cost standpoint," she said.

Ms. Zief asked why there is such a willingness to pay for regulatory protection when "the free market does a great job."

If a policy is "crummy," she said, the market will respond. "Aren't state guaranty funds sufficient?" she continued.

One answer Zief offered for the continued support of the system is that it "provides protection. Management doesn't need to produce high returns as long as there is an umbrella of state regulation." Zief added that given other sectors of the financial services industry, "one of my biggest fears is that it[the insurance industry] will slowly find itself becoming less and less relevant."

Michael Weinstein, senior vice president and senior equity analyst with Putnam Investments, New York, noted that state regulation is a profit center for many states.

But at least one member of the audience said that consumers would not read forms relating to insurance and that there is a need for state regulation.

However, George Cochran, co-founder and managing director of Cochran, Caronia & Co., Chicago, said that if guarantee funds were eliminated, consumers would pay more attention to points such as ratings from rating agencies. "The consumer would be a lot better if we got rid of protective measures. All they do is let the weak companies survive longer than they should."

Zief added that there should be a "framework of ethics" but not an "overlay" of regulation when there are other safeguards such as litigation. She said that the extra costs are actually not consumer friendly since they add to the cost of premiums.

State regulators, including the NAIC's Vaughan, portrayed a very different image of state regulation.

Noting that the insurance industry is much less tolerant of problems they see in the regulatory system because of competitive pressures that they are under, she said that state regulators had made strides to improve the system.

Vaughan said for example, that a third draft of an interstate compact for the CARFRA project was near completion and would be exposed for comment by the first week in June. The NAIC has its summer meeting in June. It is the hope that the compact will be adopted by the NAIC in September, she added. Toward that end, all large states including California, Florida, New York and Texas would be participants and a management committee representing these large states would be formed.

On the issue of a federal charter, she said that she was struck by the frequent comparisons to the banking system. However, according to Vaughan, insurance is very different because of its complexity. "It is opaque to the average consumer." There are a half million insurance complaints annually but only a few thousand in the banking industry.

An optional federal charter would create "uniformity and efficiency" but would not be used to "escape regulation," according to Gary Hughes, senior vice president and general counsel with the American Council of Life Insurers in Washington.

But Robert Hunter, a representative of the Consumer Federation of America in Washington, said that the option would put a pressure on states that would be adverse to the consumer interest. "I don't blame[the insurance industry] for wanting an OCC-type system. Who wouldn't want a lapdog regulator."

What will get Congress' attention, according to Hunter, is "a few more embarrassments like janitor's COLI."

Superintendent Serio noted that state regulation does work effectively. He noted New York Attorney General Elliot Spitzer's recent work regarding the sale of securities and practices at Merrill Lynch.

Serio said that Congress is interested in finding out regulatory structures in states with the largest market share.

There was general agreement among Hughes, Hunter and Serio that there was no chance an option would be enacted during this legislative session, although Hughes said that in the following session, it might get more consideration.