State officials to fight call for federal insurance regulator

State groups opposed to an optional federal charter for insurance regulation are trying to overcome their own differences so that they can unite to fight attempts to allow the federal government to be an insurance regulator.

The push for action by state governmental groups that want to preserve state insurance regulation intensified after House Financial Services -Committee Chairman Barney Frank, D-Mass., said at a March 5 news conference that it is “overwhelmingly likely” that financial services regulatory-reform legislation being worked on now will include an optional federal charter for life insurance companies.

Staff officials of several state-based insurance regulatory groups are meeting to develop a set of common principles on the federal-charter issue, said New York State Sen. James Seward, a Republican who is president of the National Conference of Insurance Legislators in Troy, N.Y.

After those principles are established, “we will step up our efforts on a united front,” he said. “We realize we do need to expedite this process that we’re going through. Events are going to move quickly.”

NCOIL is “continuing to reach out to our sister state organizations,” he said. The organization is working with the National Association of Insurance Commissioners in Kansas City, Mo., the National Governors Association and the National Association of Attorneys General, both of Washington, and The Council of State Governments in Lexington, Ky., Mr. Seward said.

The insurance industry, including the life insurance segment, has pushed for a number of years for an optional federal charter. Insurers argue that it would be more efficient to deal with one regulator rather than individual states for product approval and agent licensing.

Life insurance in particular should have a single regulator, many in the industry argue.

“There’s a distinct difference between life insurance companies and the -property-casualty industry,” said Jeff Taggart, president of Taggart Co., an insurance brokerage firm in Cody, Wyo., that manages about $100 million.

With life insurance products, “there’s no susceptibility to hurricanes or tornadoes or floods as may be the case with property-casualty,” he said.

SOME DISAGREEMENTS

There are some disagreements among some of the opposition groups that need to be worked out, Mr. Seward said. The primary difference has been whether an Office of Insurance Information should be created, he said.

In 2008 the Department of the Treasury, in its “Blueprint for a Modernized Financial Regulatory Structure,” proposed creating such an office within the Treasury Department that would have the power to pre-empt state regulation in negotiating international treaties involving insurance issues. The office also would have been charged with providing advice to the administration and Congress on insurance issues.

Rep. Paul Kanjorski, D-Pa., chairman of the House Financial Services Committee’s Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises, last year introduced legislation that would have created an OII.

The legislation was not adopted by Congress.

The NAIC supported the OII, while NCOIL strongly opposed it. “That’s the camel’s nose under the tent” in terms of introducing federal regulation for insurance, Mr. Seward said.

While Mr. Taggart supports an OII, he also said he believes that the states have done a good job of meeting consumers’ concerns.

“I have some concerns about creating a big, massive bureaucracy when it comes to meeting consumer needs,” which may be the case if an optional federal charter is approved, he said.

PRAISE FOR STATES

State groups argue that state regulators are best able to protect consumers. Creating such a charter “would have the same result as with optional charters for banks, which we haven’t seen any great results [from], considering the current situation,” said Susan Nolan, executive director of NCOIL. “States have the best track record” for regulating the insurance industry, she said.

The House Financial Services Committee is currently working on legislation aimed at overseeing the “systemic risks” of the financial services industry, so that problems in one segment of the industry do not cause widespread collapse of the economic system. An optional federal charter for life insurance appears likely to be part of that legislation.

The life insurance industry is stressing to members of Congress that it needs to be part of the legislation currently being considered, said Kim Dorgan, executive vice president of federal relations for the American Council of Life Insurers in Washington.

Financial industry solvency issues “are what Congress and the Treasury is focused on,” she said. “You can’t separate solvency from the rest of the operations of the industry. It all needs to go together.”

E-mail Sara Hansard at [email protected].