Opening a new front in the financial services reform debate, the American Council of Life Insurance issued the results of a preliminary study this week that touts the cost savings and competitive advantages of creating a federal regulator of insurance.

The study released Wednesday estimates that a federal supervisor-which would be an independent agency or a new Treasury Department unit-could oversee life and health insurers on a $247 million annual budget, or a third less than the combined budgets of the 50 state agencies.

Industry compliance costs also would nose-dive because insurers that opt for a federal charter would operate under uniform state laws and answer to fewer regulators.

Federal oversight would reduce examination costs by 30% and drive down licensing and other fees 44% to $247 million annually, the study said. Savings from reduced staff time, legal bills, and other compliance expenses would be "significant" but hard to quantify without a more in-depth study.

"The biggest costs are the ones we are not currently able to measure," said David Wentworth, the group's managing director of policy research. And the savings calculations would have been greater ifproperty and casualty insurers had been included in the study.

Beyond money, the biggest advantage of a federal regulator might be preventing the Office of the Comptroller of the Currency from preempting state laws that govern bank sales of insurance, the study notes.

The group's officials cautioned that the study is incomplete and that their board is a long way from endorsing federal regulation. "There is no predetermined agenda here," said general counsel Gary E. Hughes.

Convincing a Republican Congress to create a new federal bureaucracy would be an uphill battle, but sources argued it is not as farfetched as once thought.

"It is getting more credence," said Larry LaRocco, managing director of the ABA Insurance Association. "With the convergence of the industries and the mergers, people are looking for efficiencies on the regulatory side."

The American Bankers Association affiliate favors establishing a federal-state regulatory system for insurance akin to the dual banking system. Mr. LaRocco agreed with insurance industry lobbyists, however, that enactment of such legislation is a long-term proposition and that it should be pursued after enactment of financial reform legislation already on the table. "Post-financial modernization, this will become a front-burner issue for us," he said.

But critics said insurance companies would be better off fighting for legislation that reins in banking regulators and employs the states as functional regulators.

"We can accomplish financial modernization with state regulation, which is already in place, instead of duplicating it with a federal system," said George M. Reider Jr., insurance commissioner of Connecticut and president of the National Association of Insurance Commissioners.

Insurance companies and agents might have to face "the worst of all worlds" and comply simultaneously with state and federal regulation, said Robert A. Rusbuldt, executive vice president of the Independent Insurance Agents of America. "There is no way state regulation is going to be whisked away."

The study emphasized numerous possible disadvantages to a federal charter, including lower political clout in the bigger arena of federal lobbying, loss of antitrust and community reinvestment exemptions, and capitalizing a federal fund like the bank deposit insurance fund. The study also predicts a $245 million increase, or nearly 9%, in state premium taxes because of the likely loss of tax deductions after switching charters.

"The advantages of state regulation outweigh the disadvantages," said Jack Ramirez, president of the National Association of Independent Insurers. "You're comparing the devil you know to the devil you don't."

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