The second level was within the p-c industry, with some p-c representatives saying that OFC is necessary for the future competitiveness of the industry, and others insisting that it could make insurance regulation even more burdensome and expensive.

Joseph J. Gasper, president of Columbus, Ohio-based Nationwide Financial Services and chairman of the Washington-based American Council of Life Insurers, called the current state regulatory system a “competitive albatross.”

He noted that the system was designed when the life insurance industry was much different than it is today. Life insurers, Mr. Gasper said, no longer focus simply on traditional life insurance products. The business today, he said, is about retirement security and long-term savings. In addition to competing against each other, Mr. Gasper said, life insurers must also compete against banks, mutual funds and securities firms.

Unfortunately, he said, these competitors have an advantage over life insurers in that they can develop products and bring them to market quickly. But life insurers, he said, may have to wait 18 months or more to get approval for new products from all jurisdictions. And even then, he noted, local variations might force life insurers to tweak a new product in a way that effectively transforms it from a single, national product to 30 or more different products.

“The current system is not designed to accommodate national companies, and it doesnt,” Mr. Gasper said.

Tony Nicely, chairman of Washington-based GEICO, said he understands Mr. Gaspers concerns. Mr. Nicely, who spoke on behalf of the National Association of Independent Insurers, said that while he could not speak for the Des Plaines, Ill.-based NAII on the issue of establishing a life insurance-only federal charter, he personally would not oppose it. But he does oppose establishing OFC for p-c insurers, he said.

While acknowledging that the state system needs reform, Mr. Nicely said that OFC would have severe consequences for p-c insurers. “We believe that geographic and state conditions are such that customers needs differ from state to state,” he said.

Moreover, Mr. Nicely said, an OFC system could have a devastating effect on small and medium-sized insurers. Under the current OFC proposals, he said, insurers would not be required to report loss data to advisory organizations such as the Insurance Services Office, and indeed, may even be restrained from doing so because of federal antitrust exposure.

“Without the availability of aggregate loss-cost data, these small and mid-sized insurance companies would not have credible data and would be unable to compete with larger companies that can rely solely on their own data,” Mr. Nicely said.

He said he believes that even the toughest states for p-c insurers, such as New Jersey, are starting to see the light on regulatory modernization and are moving towards reform.

Asked by Subcommittee Chairman Richard Baker, R-La., how long Congress should wait before acting, Mr. Gasper said that if there is no progress on state regulatory reform, then he would say more action is needed. But he said that for life insurers, Congressional action is already 15 years too late.

Rep. Paul Kanjorski, D-Pa., brought up the issue of a tiered system, one that might apply only to life insurers and perhaps also to certain large commercial risks.

Mr. Nicely replied that if certain segments of the industry, such as life insurance, are carved out, it might be possible. “I can see Mr. Gaspers arguments,” he said. However, the p-c business is so complex, Mr. Nicely added, it could take several years just to understand the implications of OFC.

For his part, Mr. Gasper also acknowledged that the two industries are very different. But he noted that Nationwide is also a major p-c company, and even from that perspective, he said that insurers should have a choice. If Mr. Nicely believes that state regulation is better for GEICO, he should have that choice. Nationwides institutional view, on both the life insurance side and the p-c side, is for choice.

A representative of a major p-c group, the Washington-based American Insurance Association, agreed. Robert Restrepo, president of Allmerica Property & Casualty Companies of Worcester, Mass., said the level regulatory playing field created by OFC is critical to the long-term viability of the industry.

“The current state regulatory system imposed significant costs on insurers and, ultimately, our customers, as well as the economy at large,” Mr. Restrepo said. Moreover, he said, the challenges facing the p-c industry are increasingly national and international in scope.

“Terrorism, natural catastrophes, fraud and asbestos litigation are just some of the major issues the industry faces,” he said. “But the current decentralized regulatory system lacks the tools to address these issues in a comprehensive manner.”

While AIA also supports reform of state regulation, Mr. Restrepo said the process is slow and uneven. “For every incremental movement toward greater state regulatory efficiency or uniformity, there are many new state-specific regulatory requirements that result in cost, delay and frustration for insurers with little, if any, consumer benefit,” he said.

But Paul Mattera, senior vice president of Boston-based Liberty Mutual, said that a federal system could undermine the best characteristics of state regulation, including diversity, innovation and responsiveness. “It is difficult to imagine a single regulatory system working in harmony with the diversity of underlying reparation laws and differing public expectations about the role of insurance regulation,” he said.

Mr. Mattera raised several questions:

Will an open and competitive rating law work in a state with a tradition of subsidizing urban drivers, he asked?

How responsive will a federal regulator be to market dislocations in individual states caused by extreme weather or seismic activity?

Finally, he asked, can market conduct be fairly assessed by a federal regulator unfamiliar with the underlying state law or court interpretations?

Mr. Mattera said that efforts to achieve OFC are likely to lead to dual regulation. For example, he said, Congressional interest in preempting state solvency regulation in favor of uniform financial requirements enforced by a federal regulator might not extend to rate and form regulation. This separation of financial regulation from market regulation would present the worst of dual regulation, he said.

The state system needs improvement, he said, but there is no reason to believe a federal system would be any better.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, June 17, 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.