ACLI Will Work With P-C Group To Harmonize Their Charter Proposals

By

Washington

The American Council of Life Insurers will work with the American Insurance Association, a leading property-casualty group, to harmonize the administrative aspects of their proposals for optional federal chartering of insurance companies, an ACLI executive says.

Gary Hughes, senior vice president with ACLI, says he is encouraged with the AIA proposal from an administrative standpoint.

The Washington-based AIA recently introduced a federal chartering proposal for p-c insurers and says it will work for its enactment on Capitol Hill.

Hughes says the ACLI board recently voted not to seek federal chartering legislation at this time. (For more on this, see this weeks D.C. Dispatch on page 50.)

Hughes notes that while life and p-c insurance are all part of the business of insurance, they represent discrete lines that are regulated differently in the states today.

ACLIs view on optional federal chartering is that if a common administrative structure is developed, the different regulatory needs of life insurers and p-c insurers can be plugged into it, Hughes says.

While there are some differences between AIAs proposal and the one developed by ACLI, he says, they are relatively small and can be worked out.

Meanwhile, the p-c industry remains sharply divided over state vs. federal regulation. Reactions ranged from strong support to disappointment.

The Washington-based Council of Insurance Agents and Brokers offered the strongest backing to AIA.

“We support the AIA without reservation,” says Council President Ken A. Crerar.

He calls optional federal chartering “perhaps the most fundamental and important issue affecting regulation of the insurance industry.”

Crerar notes that in the early 1990s, AIA broke new ground by supporting the concept of a federal charter. “At the time, theirs was a minority viewpoint and a courageous one.”

He says he hopes the AIA action will move the political dynamic forward and help keep states focused on the urgent need for market-based regulatory reforms.

But Rodger S. Lawson, president of the Downers Grove, Ill.-based Alliance of American Insurers, disagrees with AIAs support for federal chartering.

“We are disappointed with this shift in AIAs position, particularly since we have historically worked with them to improve the state regulatory system,” he says. “We hope that this will not lead to a future abandonment of these efforts.”

Lawson says the Alliance does not agree that the federal government will be a more benign regulator or that total federal preemption is obtainable.

“We believe that there would be additional political costs that are not clearly understood,” Lawson says. “Once a majority of insurance companies fully realize the ramifications of this federal chartering initiative, we are confident that they will oppose it.”

Maria Berthoud, vice president of federal affairs for the Alexandria, Va.-based Independent Insurance Agents of America, agrees. She says she is not surprised by the AIAs support for optional federal chartering. However, she says, those who work every day in the real world market recognize that this plan will not work.

Federal chartering may make sense on the life insurance side of the business, she says, because of the nature of life insurance products. But on the p-c side, she says, federal chartering is too complicated, cumbersome and bureaucratic.

Kathleen Sebelius, president of the National Association of Insurance Commissioners, says AIA has been a great partner to NAIC during the past 17 months in working on regulatory reform.

NAIC members recognize the need for change, Sebelius says, and have embarked on a national drive to bring greater uniformity, uniform application, efficiency and effectiveness to insurance regulation.

“Despite the AIAs action, our focus will not change nor will we yield our mission of safeguarding consumers across the country, knowing that they are and will continue to be well served by the states,” says Sebelius, who is Kansas commissioner.

Under the AIA plan, federally chartered insurance companies would be freed from rate and form oversight. However, the industrys antitrust immunity would be eliminated for most ratemaking activities.

Federally chartered insurers would also be exempt from state licensing, solvency and market conduct laws.

Instead, an office called the Federal Insurance Chartering Director would be established within the Treasury Department with authority to establish capital and surplus requirements, take action against financially impaired companies, promulgate unfair claim and marketing practice standards, engage in market conduct examinations and levy fines.

Federally chartered insurers would still have to comply with state premium tax laws, pay all required state assessments and participate in state guaranty funds.

Leigh Ann Pusey, senior vice president of government affairs for AIA, says AIA decided to consider a federal role due to changes created by the Gramm-Leach-Bliley Financial Modernization Act, dynamics in the marketplace, and frustration with the current system.

AIA anticipates, she says, that as it pursues federal chartering on Capitol Hill, challenges will arise to try to impose Community Reinvestment Act and similar requirements on insurers.

AIA is prepared to fight these challenges, Pusey says, but there are no guarantees about the outcome, and there may well have to be trade-offs.


Reproduced from National Underwriter Life & Health/Financial Services Edition, August 6, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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