"Plaintiffs' lawyers dream up new causes of action and new insurance policy interpretations, and the courts become the surrogate regulators," he said. "And we have the [state] attorneys general who think they should be able to force the industry to do things through litigation beyond even what the state legislators and state regulators require."

Mr. Rich, speaking here at this week's 57th annual meeting of the Des Plaines, Ill.-based National Association of Independent Insurers, noted the regulatory difficulties facing carriers like USAA, which provides insurance to members in 50 states, the District of Columbia and three of the four U.S. territories.

"We can no longer effectively and efficiently serve our membership all over the United States under a state-based system that lacks uniformity and too often imposes conflicting requirements on our insurance operations," he said.

As a possible solution, "over the past few years, the American Council of Life Insurers, the American Insurance Association, and the American Bankers Insurance Association have taken the lead in developing proposals that call for enactment of federal legislation that would enable insurers to opt for a federal charter," he noted.

Mr. Rich emphasized that these proposals call for an optional federal charter, and that no one is calling for the federal government to replace state oversight. "In fact, a majority of insurers will almost certainly opt to continue to be regulated right where they are today," he said.

However, he added, "we need to move to a system where insurers compete on products and price, and away from the current environment where regulators either dictate both or are empowered to approve both."

A strong federal option is the best way to encourage modernization of state regulation, he said, because the tension between a federal system and the state systems "will achieve important results that for so many years have been the subject of much talk but little action."

Consumers ultimately will benefit as regulators focus their efforts "on solvency, and strip away the delays and costs that have burdened us for the last 57 years," Mr. Rich said.

"For people who have lived in one state all their lives and have no intention of ever leaving, a major consideration in choosing an insurer could well be whether or not that insurer is subject to the jurisdiction of that state's insurance department," Mr. Rich said.

Conversely, he said the USAA membership is mobile, given that it is not unusual for members of the military to move every 18-to-24 months.

"They might buy a policy from an insurer in one state, move to another, find out they have a problem with the policy, contact the new state's department of insurance and find out the insurer is not authorized in that state, and the regulator can't do a thing about the problem," he said.

Such people would be better off doing business with a federally-chartered insurer, "where the regulator remains constant wherever they reside," he said.

Taking a different viewpoint on the issue of reform was NAII Chairman Tony Nicely, who said it's important to improve "the current state-based system because it is the regulatory system under which we will be working for the foreseeable future."

"Regardless of your individual views on the role of the federal government in regulating the insurance business, federal intervention--if it ever comes--would be years away," said Mr. Nicely, who is chairman, president and CEO of GEICO in Washington, D.C.

The NAII should continue to support state regulation, which has the potential to deliver competitive insurance products for the best value, he said, emphasizing that consumers are best served by a marketplace in which competition is the primary regulator.

"Because our customers' needs are often vastly different from one geographic market to another, and because of the unique context of each state's legal and reparation system, a state-based mechanism is essential," he said.

The challenge is how to improve and strengthen the current state systems because insurers find it difficult to do business in some states, Mr. Nicely added. "Rates are artificially suppressed and consumers' choices have become limited," he said.

"Since its inception, NAII has been committed to supporting and enhancing a competition-driven regulatory system, because a competitive marketplace assures consumers the lowest pricing, most diverse products, best service and greatest number of insurance providers from which to select," he said.

"The best way to assure that insurance rates are not excessive is to create an open marketplace in which many insurance companies compete for business," he added.