Indeed, in a statement earlier this year outlining its priorities for the 108th Congress, the House Financial Services Committee devoted several pages to insurance, reflecting an activist agenda on insurance reform.

“Congress is very clearly looking at the industry, more from an oversight standpoint at this juncture,” said Julie Gackenbach, assistant vice president of federal affairs with the Des Plaines, Ill.-based National Association of Independent Insurers, which opposes federal regulation.

“We will likely see some consideration of national standards,” she added, “but I dont see federal regulation.”

But Gary Karr, a representative of the Washington-based American Insurance Association, which supports optional federal chartering, said that it is not off the table.

“It is clear that regulatory reform is on the mind of the Committee,” he said. “It is a high priority. It might take time for OFC (optional federal chartering) to sift up, but the Committee is looking at it.”

All this activity comes at a time when state government advocates of state regulation say they agree that insurance regulation needs reform and they are committed to bringing it about.

Timothy L. Tucker, director of state and federal affairs for the National Conference of Insurance Legislators, said it is no longer good enough for states to say they are working on reform initiatives.

Reforms, he said, have to be developed and implemented in a timely manner. NCOIL, Mr. Tucker said, is working toward that end as reflected by a recent report of market conduct reform that NCOIL leaders say could become a model act. (See May 12, page 6, and page 24, this edition, for more on market conduct reform.)

He said he does not believe the Committee wants to move toward federal regulation.

“I think there is still hope that the states can act quickly,” Mr. Tucker said.

Arkansas Commissioner Mike Pickens, who is the current president of the Kansas City, Mo.-based National Association of Insurance Commissioners, agreed.

“Based on our Congressional visits, I think the action will not be on a dual federal chartering bill,” Mr. Pickens said.

Instead, he said, he expects to see Congress consider a federal standards proposal that is being developed by the Alexandria, Va.-based Independent Insurance Agents and Brokers of America.

The Committee, Mr. Pickens said, is building a case that state regulation has made positive steps. For example, he said, the NAICs solvency accreditation program has been one of state regulations biggest success stories.

However, he said, there is also a case that more work needs to be done. Congress, he said, will likely keep pressure on the states to continue reform.

Mr. Pickens noted that there has been a change in the industry in recent years in that the industry itself is expressing more and more concerns about state regulation. AIA, along with the Washington-based American Council of Life Insurers, is talking about optional federal chartering.

However, he said, most of the industry does not support optional federal chartering. Any action, Mr. Pickens said, will be on a federal tools proposal.

But Robert Rusbuldt, chief executive officer with IIABA, noted that the IIABA proposal, which is still being developed, may by necessity include some type of federal government role.

The problem, he noted, involves constitutional questions of who would enforce federal standards.

While the NAIC might seem the logical choice, he said, there is always a constitutional question involving NAIC, which is a private trade association and is not directly responsible to any federal agency.

(The constitutional question involves whether Congress can delegate authority to enforce a federal law to an organization like NAIC.)

Currently, Mr. Rusbuldt said, IIABA is looking at a role for NAIC in promulgating some of the standards. But in addition, he said, there might have to be some type of federal entity that would have veto power over what the NAIC does in order to meet any constitutional issues.

However, Mr. Rusbuldt emphasized, this federal entity would have veto power, but not regulatory power.

IIABA is still considering the issue, he said, as well as the issue of where in the federal government the veto power would reside.

While there is a growing body of expertise at the Treasury Department on insurance due to the terrorism insurance program, Mr. Rusbuldt said, very few Republicans want to expand the power of the Treasury versus the states.

“Most members simply want uniformity and efficiency,” he said.

Moreover, Mr. Rusbuldt said, if federal standards are to be effective in achieving uniformity and efficiency, they must be as clear as possible. “We want to leave as few gray areas as possible,” he said.

There is also a question, Mr. Rusbuldt said, regarding enforcement. “What is the hammer forcing states to comply?” he asked.

IIABA, he said, is looking at various ideas and the issue is still under discussion. However, Mr. Rusbuldt added, he believes the states will want to voluntarily comply with the standards, since uniform and efficient regulation is clearly good for consumers.

As for federal regulation, he added that currently some 11,000 people in the states are involved in insurance regulation. If there is a federal system, Mr. Rusbuldt said, there will be thousands more in Washington.

“I dont see that happening anytime in the near future,” he said.

Indeed, while Treasury is developing a lot of insurance expertise in the context of the terrorism insurance program, Mr. Pickens said he does not believe that Treasury wants to get into the business of regulating insurance.

He said that, having dealt personally with Treasury officials, the interest at Treasury is to focus on its role as a reinsurer for terrorism losses. Treasury and NAIC, Mr. Pickens added, have developed an excellent working relationship.

However, Treasury did cause some concern among opponents of federal regulation when it recently asked for comments on whether it should promulgate financial standards for so-called “federally approved insurers,” which it described as insurance companies approved to write insurance under various federal programs but which do not come under a consistent set of financial standards.

NAII filed comments with Treasury challenging its authority under the terrorism insurance legislation to promulgate such standards.

Ms. Gackenbach said that as of this writing, NAII has not received any feedback from Treasury on its comments.

(National Underwriter contacted Treasury regarding an interview on how it sees its role with the industry and state regulators. A department representative promised an interview, which was not forthcoming at this writing.)

However, Ms. Gackenbach added, while Treasury is learning a lot about how the industry works, it is relying heavily on NAIC throughout the process.

She added that the terrorism insurance program is limited and likely will expire in less than three years. “Treasury,” Ms. Gackenbach said, “will be looking to wind down.”

But one supporter of optional federal chartering, who asked not to be identified, said he is not so sure. While there is a lot of interest in the IIABAs federal standards proposal, he believes the Financial Services Committee is starting to realize that it could be so complicated that it might be hard to implement.

All the optional chartering proposals, this source noted, identify Treasury as the insurance regulator. Even if the terrorism insurance program expires, he said, Congress may want to maintain some insurance expertise at Treasury should it conclude optional federal chartering is the only answer.

Currently, the prevailing view is that Congress will look at something short of federal regulation in its effort to reform insurance regulation.

But there is a broad consensus that insurance regulation must be reformed.

“The clock is ticking,” Mr. Tucker warned.

Reproduced from National Underwriter Edition, June 23, 2003. Copyright 2003 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.