Mr. Lowther's comments came in a formal statement presented to a House Financial Services Subcommittee roundtable discussion on insurance regulatory reform yesterday.

He said that those who call most strongly for federal regulation say the state system is too cumbersome and unwieldy competitively.

However, Mr. Lowther said, the state system has worked for State Auto and its customers for a long time.

"Furthermore, the state system has evolved over the years to meet changing conditions and it continues to do that today," he said.

Mr. Lowther said that the proponents of federal regulation said that rate and form regulation would be dramatically more efficient with a single regulator. However, he said, the interplay between p-c insurance and state tort and contract law cannot be overlooked.

"I suggest that one regulator is going to have to wear 51 hats because the forms used and the rates charged would presumably still reflect state law and other local conditions present in the several states," Mr. Lowther said.

But David A. Bowers, executive vice president with Schaumburg, Ill.-based Zurich North America, said that optional federal chartering is necessary because state-based attempts at reform are plagued by parochial interests.

"There is no ?greater good' motivation when a lower-level insurance department bureaucrat is reviewing a particular product offering in a particular market at a particular point in time," Mr. Bowers said.

"With no consideration of appreciation for the national characteristics of a product or market, it's not surprising that the century-long history of model laws or standards in the insurance industry has been a failure," he added.

Nothing short of a national regulatory system will achieve true standardization in insurance regulation, Mr. Bowers said.

But Paul Mattera, senior vice president with Boston-based Liberty Mutual, urged Congress to move with caution.

While there is growing impatience with the pace of reform in the U.S., Congress should send a clear message to the states and the National Association of Insurance Commissioners that they must accelerate their modernization agenda before abandoning the current system, he said.

"There is much to commend about state regulation," Mr. Mattera said. "It has withstood decades of change, adapting as necessary to meet the needs of an increasingly complex insurance market and the customers it serves."

He noted, however, that new and even greater challenges exist, such as the proliferation of class action lawsuits and expanding asbestos liability.

A more immediate challenge, he said, is the threat posed by terrorist attacks, and state regulators have not been effective advocates in this regard.

"Their performance will have to improve or the calls for federal regulation will get louder," Mr. Mattera said.

Herman Brandau, associate general counsel with Bloomington, Ill.-based State Farm, said that the important thing is the content of regulation.

"Properly focused regulation can be achieved in a number of ways at either the state or federal level," he said.

He cited four guiding principles by which State Farm will judge the effectiveness of any regulatory system. First, Mr. Brandau said, resources should be focused on solvency and protecting the public from unfair business practices.

Second, he said, prices and policy content should be determined by the marketplace.

Third, Mr. Brandau said, there must be uniformity. The vast majority of differences in state regulation today are not justified by any unique situation in any particular state, he said.

Finally, he said, regulators should have primary oversight of industry practices, not the courts. Mr. Brandau said that in a rash of lawsuits, state court judges are asserting nationwide jurisdiction over business practices that are under the jurisdiction of regulatory officials.

"For a company to operate in the public interest, it must have certainty that rules and decisions made by regulatory authorities can be relied upon in conducting its business," he said.

The Financial Services Committee likely will not seriously consider insurance regulatory legislation until next year at the earliest.