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Optional Federal Insurance Regulation Gaining Traction In Senate Committee

The long-standing debate over federal vs. state regulation of insurance is beginning to gain serious attention in the Senate. In a recent hearing on the National Insurance Act of 2006 (S. 2509), introduced by Senators John Sununu (R-NH) and Tim Johnson (D-SD), industry spokespersons argued that allowing companies to opt for federal regulation could result in lower premiums. The bill would allow insurers to choose between the current system of regulation by 50 states and the District of Columbia and a federal system that would provide a single regulator. Scott Harrington, Professor at the University of Pennsylvania's Wharton School, told the Committee that regulation of rates, rate classification, and policy forms in many states appear beyond repair and that some form of federal intervention is necessary. He said the priorities for regulatory reform should be: (1) To provide one-stop approval or certification of policy forms; (2) To have virtually all rates, rate classes, and covered benefits determined by competition rather than regulation; and (3) To preserve and enhance private market incentives for safe and sound insurance.
If the states cannot agree to eliminate unnecessary regulation, achieve some degree of uniformity, establish uniform processes for filings and applications, and coordinate compliance activities, some form of federal regulation will be needed, Robert Klein, Director of the Center for Risk Management and Insurance Research at Georgia State University, testified.
Speaking on behalf of the American Insurance Association, which represents the large commercial insurance carriers, Joe Beneducci, President and Chief Operating Officer of Fireman's Fund Insurance Company, said "A market-based optional federal charter can benefit consumers by reforming regulation and encouraging innovation, while retaining the state regulatory system for those companies who wish to remain there."
Randall Quarles, Under Secretary of Treasury for Domestic Finance, did not endorse specific legislation but asserted that reform is needed in the industry. No action is expected this election year, but prospects for enacting some form of federal regulation in the next few years clearly are improving.