Indiana State University Newsroom

NFI Summit ignites debate on both sides of Federal Charter Issue

March 2, 2006

WASHINGTON, D.C. - They say there are two sides to every issue, and in the case of a proposed optional federal charter (OFC) for the insurance industry, this has never been more true.

Two very different positions on the issue emerged today (March 1) as part of Networks Financial Institute's third annual insurance summit at the Ronald Reagan International Trade Center in Washington, D.C. The summit was presented by NFI at Indiana State University and sponsored in part by B&D Consulting LLC.

"The idea of insurance regulatory reform is a growing topic, and we're happy to be playing a lead role in bringing these key decision makers together to discuss it," said Liz Coit, executive director of Networks Financial Institute at Indiana State University. "This year's summit has enabled us to engage in some very active dialogue regarding the industry."

One argument throughout the course of the day was in favor of an OFC, putting the federal government in the regulatory driver's seat. The other was in favor of the State Modernization and Regulatory Transparency (SMART) Act, which would leave the primary power in the hands of the state, but defer to the federal government in some cases. The overriding question is: Which line of thought will eventually prevail?

The jury is still out, but many hold out hope that a remedy in some form will come soon, even as soon as this spring. Others say a solution may not be in sight for months, or even years, to come.

According to Rep. Paul Kanjorski (D-Pa.), a decision isn't likely from the 109th Congress on federal versus state charters, but next year's Congress may have a better shot at it.

"I don't know how that type of legislation could see the light of day," said Kanjorski, who is the ranking member on the House Financial Services Committee's Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises. He reported that Senators John Sununu (R-N.H.) and Tim Johnson (D-S.D.) are expected to introduce an optional federal charter bill in the coming weeks.

"Providing a uniform product, the saving of expenses by the industry and lowering costs for consumers are all key benefits," Kanjorski explained. Scott Harrington of the Wharton School agrees.

He sees the pressure for an optional federal charter stemming from four main issues: costs and delays associated with regulatory approval of policy forms in 51 different jurisdictions; costs and delays associated with insurer rate change approvals; restrictions on insurer decisions and risk classification systems; and state mandates that insurance policies provide coverage for certain types of benefits or losses.

Take delays in form approval, for example, said Harrington, who serves as Alan B. Miller Professor in the health care systems and insurance and risk management departments at the Wharton School, University of Pennsylvania. Life insurers compete with banks and securities firms in the asset management business, but not quite on a level playing field. Banks have the option of a federal charter and are essentially regulated at the federal level.

"The patchwork process by which life insurers have to obtain approval for their products under state regulation, and the associated costs, delays and refusals at the state level place life insurers, in particular, at a competitive disadvantage with federally regulated competitors," he said, adding that a life-insurance-only federal charter could happen as a possible first step in the process.

In fact, Democrats and Republicans and insurers from all walks of life at the summit agreed that current regulatory systems for insurance must be modernized and modernized sooner rather than later. What remained unresolved were the questions of "when" and "who"? When will legislation happen: soon or not in our lifetimes? And, whose charge will it be to regulate insurance: the individual states or the federal government?

Having an optional federal charter would be Sen. John Sununu's (R-NH) choice, according to Jamie Burnett, his legislative director.

"It would bring sophistication to what has become a very complex and global industry," Burnett said. "Regulation has had a tough time keeping pace with the insurance industry. There is no single regulatory voice here (in Washington, D.C.) for insurance, and that provides challenges with trade agreements and so forth. Having someone at the federal level who can speak to the health of the industry with the House and Congress is vital. We are in the midst of debates about catastrophic insurance and flood insurance with no experts to turn to."

Glenn E. Westrick, who serves as counsel for the House Financial Services Committee agrees that the federal government can play an important part in the insurance regulation process.

"I think most rational people are skeptical of federal intervention, however, there's a point where national action and uniform regulations are required," Westrick explained. "There is a critical role for government to play if state regulators are not meeting the needs of the insurance marketplace and insurers in general. States need uniform pressure if they are ever going to perform in concert, and only Congress can provide that pressure."

Charles E. Symington, Jr., senior vice president of government affairs and federal relations for the Independent Insurance Agents & Brokers of America, which serves more than 300,000 members nationwide, says that insurance regulation is in "dire need of reform, but states will be unable to achieve the level of reform that?s required on their own."

He believes that the SMART Act or something close to it will eventually prevail because it "modernizes with targeted federal legislation and pushes the states to reform the system."

"Local regulation works best for consumers," Symington said. "As independent agents, we represent the consumers, and we aren't hearing from consumers that they need an optional federal charter. State regulation can be very responsive to local concerns, and we believe a federal regulator will not be able to be as responsive to those needs."

Gary E. Hughes, executive vice president and general counsel for the American Council of Life Insurers, says the ACLI "takes the pulse" of its board once a year, and this year, "insurance regulation is a top priority."

"The state-based system needs to be more efficient than it is," Hughes said, "and OFC is more of the answer. We do have a feeling that it will be a reality and in a rather short period of time, but it is the job of the industry to educate Congress and consumers and really get involved in making the case."

Highlights of this year's summit included:

- A congressional panel with Jamie Burnett, legislative director to Sen. John Sununu (R-NH), and Glenn Westrick, counsel to the House Financial Services Committee;

- A view from the states from Alessandro Iuppa, Maine superintendent of insurance and president of the National Association of Insurance Commissioners;

- An industry panel featuring Charles Symington, Jr., senior vice president of government affairs and federal relations for the Independent Insurance Agents & Brokers of America; J. Kevin McKechnie, associate director of government relations for the American Bankers Insurance Association; Gary Hughes, executive vice president and general counsel for the American Council of Life Insurers; J. Stephen Zielezienski, senior vice president and general counsel of the American Insurance Association; and Richard Bouhan, executive director of the National Association of Professional Surplus Lines Offices;

- A presentation by The Honorable Emil Henry, Jr., assistant secretary for financial institutions for the United States Department of the Treasury

Indiana State University's Networks Financial Institute strives to build strong links among policy-makers, professionals and industry leaders as part of its annual regulatory reform summits. NFI, which was launched in 2003 and supported by a $20 million grant from the Lilly Endowment, is a not-for-profit organization headquartered in Indianapolis, with offices on ISU's campus in Terre Haute and in Washington, D.C.

CONTACT: Liz Coit, executive director, Networks Financial Institute at Indiana State University, (317) 536-0281, Ext. 701 or

WRITER: Maria Greninger, associate director, Communications & Marketing, Indiana State University, (812) 237-4357 or