COLUMNS

Optional federal charter would improve delivery and regulation of insurance

By Sens. John Sununu (R-N.H.) and Tim Johnson (D-S.D.)

"The commissioners are now fully prepared to go before their various legislative committees with recommendations for a system of insurance law which shall be the same in all States, not reciprocal but identical, not retaliatory, but uniform."

- New York Insurance Commissioner George W. Miller, 1871

Well, it's been a long 135 years, and in 2006 we're not much closer to Mr. Miller's dream.

In 1999, Congress passed the Gramm-Leach-Bliley Act, legislation that modernized our banking system and provided a foundation for the financial-services industry to become more integrated, market-oriented and technologically advanced. Since then, consumers have benefited from improved industry competition and innovation, increased choice of financial products and more efficient delivery of services.

The insurance industry, however, has not enjoyed the same dynamic and competitive environment. Today a clear, uniform regulatory system for national and global insurers is more important than ever for consumers and competitors across America.

As George Miller recognized, our inefficient regulatory system spread across more than 50 different jurisdictions imposes direct and indirect costs on consumers in the form of higher compliance fees and onerous approval barriers that delay market entry for new products. That is why we have introduced a bipartisan National Insurance Act to create an optional federal charter for life and property/casualty insurance.

A more uniform regulatory environment, mirroring the highly successful dual banking system, stands to improve substantially the climate for those who buy, sell and underwrite insurance in several critical ways:

* Choice. A federal system of regulating insurance would allow insurers and agents or brokers freely to elect a federal or state charter and license and would permit conversion between federal and state status as warranted. Such an approach preserves the state regulatory system for those who choose it, keeping state insurance commissions responsible for regulating and overseeing state-licensed entities.

* Stability. An independent Office of National Insurance within the Department of the Treasury would possess regulatory, supervisory and enforcement powers similar to the Office of the Comptroller of the Currency and the Office of Thrift Supervision. The new office would establish financial regulations based on the National Association of Insurance Commissioners' model laws to ensure the safe and sound operation of insurers.

* Consumer protection. A Division of Consumer Protection, as created by the regulator, would oversee strict regulations and guard against unfair and deceptive practices by insurers and agents for the advertising, sale and administration of products. A Division of Insurance Fraud, also created under the bill, would make insurance fraud a federal crime. An office of ombudsman would act as liaison between the regulator and any person adversely affected by the office's regulatory activities.

While taking these cautionary steps to protect consumers, the bill does not, however, permit the federal regulator to set rates or price controls for insurance. Instead, the National Insurance Act appropriately relies on competitive pricing within the marketplace.

* Efficiency. The uniformity and market-based reforms captured in our legislation would help to eliminate a tangled web of regulation created by an overwhelming amount of state rules for financial regulation, licensing, policy forms, rates and market-conduct exams. New insurance products - often not available for sale for up to two years after initial submission for state regulator approval - would arrive more quickly on the market.

State commissioners may have hoped to achieve greater uniformity and market-based reform within the state regulatory scheme; however, many present-day problems have existed for a century or more with little opportunity for significant relief in the near future. An optional federal charter is not a question of preemption. Rather, it is a mechanism for creating a viable, consistent and efficient system for a national and global industry. Fiefdoms of regulation do not serve the industry or its consumers well.

* Expertise. The Office of National Insurance would also provide lawmakers with an expert to turn to on issues affecting policyholders, the health of the insurance industry and the overall economy. At a time when Congress is legislating on policy affecting the insurance industry, policyholders and taxpayers, there is no single federal entity that it can turn to for expertise and guidance. When the Federal Emergency Management Agency is the most knowledgeable witness available for a detailed discussion on risk-based pricing of premiums and cross-subsidization, as was the case during a recent Congressional hearing on flood insurance, we are operating at a disadvantage.

Gramm-Leach-Bliley was a positive achievement for Congress, producing dramatic results for the nation's economy and consumers. It is time for Congress to revisit the unfinished business of financial-services modernization and consider the strengths of an optional federal charter for insurance.

Sununu and Johnson are members of the Senate Committee on Banking, Housing and Urban Affairs.