WASHINGTON - As the curtain rises on a new congressional session next month, banking lobbyists will return to a familiar plot - creating a federal insurance charter.
The cast of characters is led by the ABA Insurance Association, an affiliate of the American Bankers Association, which is pushing for the creation of a federal agency to streamline the oversight of insurance companies that are currently regulated by up to 50 separate state commissions.
The bankers say they envision a dual chartering system where insurance companies could choose to be regulated by the federal agency or by the states.
Insurance industry representatives, who previously opposed the federal charter, are now working on their own plan to create one.
The issue first surfaced a few years ago, but it is finally gaining serious consideration as the next logical step after the passage of the Gramm-Leach-Bliley Act in November 1999, which allowed banks, insurance companies, and securities firms to join forces in diversified financial holding companies.
"This is an issue that truly needs to be on the front burner," said Beth L. Climo, executive director of ABA Insurance Association.
Proponents argue that a federal charter would make it easier for insurers to introduce new products quickly and develop uniform products nationwide. But others, including groups like the American Council of Life Insurers and the American Insurance Association, say they are still trying to fix the state-based system.
"It may be easier to sell a new scheme for insurance regulation if you do not change the basic way the insurance industry is regulated," according to Gary E. Hughes, the ACLI's general counsel.
In a report this month to the National Association of Insurance Commissioners, an ACLI task force on regulation proposed "replacing the current, state-by-state system of insurance product filing with a streamlined, single-point-of-filing approach." In June another report from the life insurers group recommended ways that the commissioners take "a national approach to licensing insurance agents and brokers."
Carroll A. Campbell Jr., president of the life insurers group, said the December report "reaffirms our commitment to improving the state-based system of insurance regulation.
The insurers' main complaint is the cumbersome process of getting new products approved, he said in a press statement. "It can take a company up to two years to clear the state regulatory hurdles and introduce new products to consumers. Considering that our competitors in other financial industries get their new products to a national market much more quickly, reforming the product approval system is a competitive necessity."
In case efforts to streamline the current regulatory set-up fail, or possibly to keep the pressure on state regulators, the ACLI is expected to unveil its own federal charter legislation to its members during the first quarter.
Ms. Climo said any charter legislation is unlikely to be enacted next year, "but I do think the debate can be furthered in this Congress."
Which lawmakers support a federal insurance charter remains unclear. But Rep. John J. LaFalce, D-N.Y., has favored such a system in the past, and could play a central role in its passage. However, a Republican-controlled House, an evenly divided Senate, and a new Republican President add some interesting plot twists.
Though Republicans would be expected to oppose the creation of another federal bureaucracy, advocates say they are hopeful that a national charter would gain approval on both sides of the aisle once the case for a dual chartering system is made.
The ABA Insurance Association's bill would create an Office of the National Insurance Commissioner within the Treasury Department that would charter and regulate federal insurance companies. The agency would be run by an executive appointed by the President for a five-year term and would operate much like the Office of Thrift Supervision or the Office of the Comptroller of the Currency.
The agency would grant two types of charters: one for insurance and annuity underwriters, and one for other companies that sell these products. A company that underwrites property and casualty policies would not be allowed to underwrite life or health insurance, and vice versa. (Most states currently require this division of ownership.) However, a holding company could own both types of underwriters.
Federally chartered insurance companies' rates and forms would not be regulated, but the firms would have to submit their rates to the agency, which would compare and contrast them and make its analysis public. Under the current system, each state has the right to approve or reject rates and forms.
Any company could own a federally chartered insurer, which would not be subject to state insurance laws.
Funding for the agency would come from fees on federally chartered insurers.
The proposed legislation would also create a National Insurance Guaranty Corp. that would mimic the Federal Deposit Insurance Corp. The corporation would have a five-member board: a chairman, the chairmen of the FDIC and the Securities and Exchange Commission, and two members from the public with state insurance experience.
The guaranty corporation would provide companies with direct financial assistance, allow for the purchase of failing companies and the assumption of insurance contracts, and pay out claims on the two funds. Membership would be mandatory for nationally chartered companies and voluntary for state insurers.
There would be two separate funds in this system: one for life and health insurers and one for property and casualty insurers. The Treasury Department would extend the corporation a line of credit to get it off the ground.
The insurance companies would undergo risk-based assessments twice a year and would be required to achieve a reserve ratio of $1.25 for every $100 of estimated insurance liabilities within 10 years. Troubled companies could face corrective actions or the termination of their products.
Consumers buying insurance from federally chartered companies would have the same protections against unfair trade and claims practices as customers of state chartered companies. Privacy protections under Gramm-Leach-Bliley would apply to the national charters and override state privacy laws.