He said the bill also violates the basic concept that rate regulation should not be separated from solvency regulation.

Seconding those objections was Gary Karr, a representative of the Washington-based American Insurance Association. “As supporters of optional federal chartering, we are happy Rep. LaFalce wants to advance the debate,” he said. “But we have concerns about whether what he introduced would really work.”

Carl Parks, senior vice president of government relations with the National Association of Independent Insurers in Des Plaines, Ill., which opposes dual chartering, said the LaFalce bill could create a more burdensome regulatory environment than what exists today.

As currently drafted, he said, the legislation would create a federal insurance director with broad discretionary powers similar to those held by state legislatures and regulators, but without an open regulatory process. “The directors powers appear to be extremely arbitrary,” Mr. Parks said. “The bill itself is without specifics and leaves broad discretion with the federal regulator.”

Ken Schloman, Washington counsel with the Downers Grove, Ill.-based Alliance of American Insurers, which opposes dual chartering, said that states should be given time to finish efforts to modernize the system before Congress considers adding new federal layers of bureaucracy and regulation.

He said that in any case, Congress should complete work on terrorism insurance before taking up optional federal chartering, which he called an “unneeded distraction.”

Monte Ward, vice president of federal affairs for the National Association of Mutual Insurance Companies in Indianapolis, agreed that the focus should remain on reforming state regulation. “NAMIC members believe promoting a federal charter will undermine the efforts already taking place to reform the state-based system,” he said.

In a statement, Rep. LaFalce said that his legislation reflects the realities of the insurance market. “The current state-by-state regulation of the insurance industry does not reflect either the economic centrality of the industry or the reality of todays market,” he said.

“Many of the domestic insurance companies are heavily engaged in interstate commerce, and sell insurance products to a global, national or, at the very least, a multistate market,” Rep. LaFalce said. “However, in the United States, we subject insurance companies to the burden and cost of being licensed in every jurisdiction in which they choose to sell policies.”

Under the LaFalce bill, an Office of National Insurers would be established to set solvency and other standards for national insurers and to oversee their activities. State form regulation would be preempted, but not state rate regulation.

In addition, the legislation would establish minimum federal standards for market conduct that would apply to state-chartered as well as federally-chartered insurers.

Insurance companies would have to assemble and file data with the ONI on the location of the risks they underwrite. This information could be used by community groups to document allegations of redlining, Rep. LaFalce said.

In addition, insurers would have to establish and follow a specific investment policy that takes into account community investments. However, there would be no community investment mandate.

Insurance agents would not be directly regulated by the ONI under the LaFalce bill, although the ONI would be able to investigate allegations of unfair trade practices against agents who sell policies for national companies.

Even though there is no direct regulation of producers, the bill is opposed by two leading agent groups.

The Independent Insurance Agents of America “strongly believes that Congress should build on, rather than dismantle, the current state-based system,” said Chief Executive Officer Robert A. Rusbuldt.

Last month, the Alexandria, Va.-based IIAAs national board adopted a policy statement that calls for the use of “federal tools,” such as national standards, national reciprocity, a “carrot-and-stick approach” and preemption of certain state laws–to help reform the state regulatory system.

The National Association of Professional Insurance Agents, also based in Alexandria, believes “federally-chartered insurance institutions reflect the wrong approach at this or any other time,” said Patricia Borowski, senior vice president of government affairs. “We must strike a balance between the need for national uniformity in standards and the demands of our emerging multistate markets.”

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, February 25, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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