The wide scope of the pre-emption language “raises some interesting hypothetical possibilities,” Sen. Sarbanes said. “These should be examined very carefully, very thoroughly,” he said. “It raises the question of fundamentally changing the landscape.”

Sen. Sarbanes later voiced concern about the broad pre-emption authority of the Office of the Comptroller of the Currency, especially its move to pre-empt certain state consumer protection laws dealing with mortgage disclosure and financial products.

The Supreme Court has agreed to take up several cases dealing with OCC pre-emption of state consumer protection laws in its fall term. The cases deal with whether a state can examine an operating subsidiary of a bank on issues of licensing of those selling financial products, investigating consumer complaints and inspection of records.

Senators John Sununu, R-N.H., and Tim Johnson, D-S.D., voiced strong support for their legislation–S. 2509–and urged members of the committee to work with them to improve what Sen. Sununu called a “work in progress.”

They strongly defended provisions in the bill dealing with consumer protection, pointing out that their measure would establish a separate office of consumer within a federal regulator, would subject insurers to anti-trust laws, and would mandate establishment of regional consumer protection offices.

Sen. Jim Bunning, R-Ky., was particularly critical of the OFC approach, comparing the legislation for federal regulation with the Federal Emergency Management Agency's handling of the National Flood Insurance Program.

In opening the hearing, Sen. Shelby noted that the hearing would “inaugurate a series of hearings the committee will hold this year on insurance regulation.”

“The purpose of these hearings is to continue the committee's historical oversight of the insurance industry and, in particular, to determine how U.S. insurance regulation can be strengthened and modernized.”

He added, “I am interested in learning more about all of the potential options for modernizing insurance regulation. Insurance regulation is too important for too many Americans for us not to examine all our options for modernizing our system of insurance regulation.”

Sen. Sununu said, “Unlike the modernization of banking and securities of the late 1990s under the Gramm-Leach-Bliley Act, the insurance industry remains subject to a patchwork of state regulations that have stifled competition, innovation and growth.”

Representatives of various insurance industry segments were divided in their reaction to the bill as well.

The Independent Insurance Agents and Brokers of America said consumer protections provided by state insurance regulation outweigh any efficiency advantage of a dual, federal/state regulatory system,

But insurance company executives representing the American Insurance Association, and the Council of Insurance Agents and Brokers all urged the panel to support S. 2509,

However, the National Association of Mutual Insurance Companies said it believes that reform at the state level is more likely to produce better results than federal involvement in insurance regulation.

The Property Casualty Insurers Association of America (PCI) expressed support for reforms of the current system, especially in the areas of rate and form filing, but did not advocate specific legislation. Jaxon White, president and CEO of Medmarc Insurance Company, testifying for PCI did answer a committee question by saying an OFC-type system may make the licensing process more efficient for his individual company.