Additionally, Mr. White wondered if, despite assurances from optional federal charter supporters, federally regulated companies would be willing to continue to financially support individual state insurance departments. "They're not going to want to pay for two regulatory systems," he said.

A federal regulator would be unable to handle the issues that are state or region-specific, according to Mr. Wadsworth, who said Washington would not have the benefit of the history of state legal precedents. He added that the federal regulator would be further removed from insurance buyers.

"The one who loses," he said, "would be the insurance consumer."

While many supporters of an OFC argue that a similar system has worked effectively for the banking industry, Mr. Wadsworth countered that the two are far from comparable. Banking products, he said, are relatively "homogenous," whereas insurance products, and the risks they cover, can vary from jurisdiction to jurisdiction.

Chuck Chamness, NAMIC's president and CEO, also refuted those who say that since banking has a federal/state regulatory system, why can't insurance? The concern, he said, is that a system of "charter competition" would be created, resulting in deficient regulation.

Mr. Chamness added that even state-chartered banks face a degree of "de facto" federal regulation, through such agencies as the Federal Deposit Insurance Corp.

While NAMIC opposes the federal government intervening in the industry's regulatory system, the group does believe federal involvement is appropriate when it comes to providing terrorism reinsurance.

"It's a noninsurable peril," Mr. Wadsworth said. "We can't quantify it," meaning that insurers also can't price terrorism coverage.

Mr. Chamness said the desire on the part of some lawmakers to increase the participation of insurers could put an undue burden on smaller and midsize companies. As a result, he said, any extension of the Terrorism Risk Insurance Act--or whatever program replaces it after its expiration at the end of 2007--should take a multitiered approach, including a "middle layer."

This middle layer, he said, would help ensure the program remains "meaningful for midsize players that can't afford the larger co-pays and thresholds" for federal involvement under the current TRIA program.

Gerald Schmidt, president and CEO of Enumclaw, Wash.-based Mutual of Enumclaw--who took over as NAMIC's chairman at the conclusion of last week's convention--said the line between where the federal government should and shouldn't be involved is fairly simple: Only those perils that can't be underwritten by an insurer--such as terrorism or flooding--need some form of federal involvement. "Let common sense prevail," he said.

One of the main concerns for NAMIC officers is that their members could be burdened with having to comply with Sarbanes-Oxley regulations--a federal law passed to improve accountability and transparency at publicly traded companies.

Mr. Schmidt noted that a study of insurance company insolvencies found a "very, very small percentage" of mutual insurers had problems due to the issues address by SOX regulations.

Additionally, he said studies of the model law proposed by the National Association of Insurance Commissioners show the costs of implementing SOX-like regulations for mutuals were eight times higher than the potential benefits in the original proposal, and two-to-three times the benefits in the current proposal.

Effectively, he said, NAIC would be asking NAMIC members to go to their customers and ask, "Is it okay to spend $3 of your money for $1 of benefit?" according to Mr. Schmidt.

NAMIC's vice chairman, John Bykowski (president, CEO and chairman at Secura Insurance), said SOX was intended for publicly traded companies, and that one of the authors of the legislation--House Financial Services Committee Chair Michael Oxley, R-Ohio--has communicated as much to the NAIC.

Mr. Wadsworth said further that Rep. Oxley told the NAIC that not only was SOX intended for publicly traded companies, but also that the decision not to apply it to mutual companies was intentional. "He said they had the authority, but didn't think it was appropriate."

Also troubling to Mr. Wadsworth are efforts to challenge "the use of tested underwriting tools," including credit scores and claims histories.

The use of such tools has been proven to be effective in gauging the risk of a potential insured, he said, and barring them would undermine the goal of creating an environment of "open competition" in the market that would let market forces act to keep rates lower without overregulation.