U.S. Reps. Melissa Bean, D-Ill., and Ed Royce, R-Calif., have reintroduced their National Insurance Act of 2007, the so-called optional federal charter bill that proposes letting insurance companies choose federal over state regulation.
The Royce-Bean bill is similar to Senate legislation introduced in May by Sens. Tim Johnson, D-S.D., and John E. Sununu, R-N.H.
The insurance industry has been divided over these proposals since they first surfaced several years ago and it remains so.
The current state-based regulatory system would still be available for insurers choosing to stick with it but under the OFC proposal, insurers would have the option of being nationally regulated under a more uniform structure.
Proponents say an optional federal charter mirroring the nation’s banking regulatory system would allow U.S. insurers to compete more effectively and improve the overall competitiveness of the financial services industry.
“This OFC legislation is critical because it is rooted in free-market principles, and would allow competition to flourish,” stated American Insurance Association President Marc Racicot.
The Optional Federal Charter Coalition also endorsed the Bean-Royce bill. The OFCC represents a number of financial services providers and organizations that support the federal charter.
But not all agree with the large providers. Property/casualty insurance agents have steadfastly opposed the federal charter idea, preferring legislation that modernizes the current state regulatory system over opening the door to federal regulation.
Instead of the optional charter bills, agents back the approach taken in H.R. 1065, the Nonadmitted and Reinsurance Reform Act of 2007, sponsored by Rep. Dennis Moore, D-Kan., and Rep. Ginny Brown-Waite, R-Fla., which passed the House by voice vote last month. The legislation would help create uniformity in the surplus lines and reinsurance markets.
“We share the belief held by virtually every player in the insurance market that there needs to be reform of the existing regulatory system,” says Big “I” CEO Robert A. Rusbuldt. “Change is overdue, and nearly everyone agrees that the existing system can be slow, inefficient, and duplicative. The Big “I” supports the need to update the regulatory system, but creation of a new federal bureaucracy is not the answer.”
The National Association of Mutual Insurance Companies has also been strongly opposed to a federal approach, arguing it would hurt consumers and insurers, especially small- and medium-sized carriers that comprise the bulk of the insurance industry.
“In addition to being completely unnecessary, this bill would likely lead to additional bureaucracy for insurers and, ultimately, higher prices for consumers,” said Justin Roth, NAMIC’s senior federal affairs director, when the Senate bill was introduced.
Introduction of the Royce-Bean bill coincides with recent release of Schumer/Bloomberg and U.S. Chamber reports calling for an OFC to be put in place and separate vows by the U.S. Treasury Department and the administration of New York Gov. Eliot Spitzer to review how financial services industry is regulated.