NU Online News Service, Dec. 27, 10:45 a.m. — Washington

Congress has kicked off official debate over federal chartering of insurance companies.

Sen. Charles Schumer, D-N.Y., introduced legislation establishing optional federal chartering of insurers just before Congress recessed for the year.

The Schumer legislation appears to be a hybrid based on proposals developed by the American Council of Life Insurers and the American Bankers Insurance Association, both of Washington.

It would establish an Office of the National Insurance Commissioner within the Treasury Department.

The powers of the commissioner would cover both life and property-casualty insurance.

The commissioner would have the authority to establish capital and reserve standards, accounting standards and other requirements.

In addition, the commissioner would enforce specified market conduct standards and establish standards for insurance policies.

There would be no direct federal government obligation in the event of an insurance company insolvency.

Rather, insurers would be required to participate in “qualified” state insurance guaranty associations, which are those that meet standards identified in the legislation.

The legislation would create a backup federal guaranty association to cover “non-qualifying” states.

Regarding agents, the legislation creates national insurance agencies that would be federally licensed. An insurance agent would have to obtain a federal license in order to sell insurance for a federally chartered insurer.

The commissioner would establish by regulation the qualification standards for a federal insurance producer license.

The legislation says that in establishing these standards, the commissioner is “encouraged” to base the regulation on the Model Producer Licensing Act developed by the National Association of Insurance Commissioners, Kansas City, Mo.

The Schumer bill, which at press time lacked a bill number, drew a wide range of reactions from industry groups.

David Winston, vice president of government affairs for the National Association of Insurance and Financial Advisors, Falls Church, Va., says NAIFA policy does not permit support of optional federal chartering.

He adds that he is encouraged by actions taken by the states and the NAIC to achieve greater efficiency and uniformity of regulation.

Winston says continued improvements in state regulation may obviate the interest in optional federal chartering.

The ACLI, which supports optional federal chartering, issued a statement praising the Schumer bill.

“ACLI is pleased that Sen. Schumer has taken the important first step on this journey, which is critical to the continued competitiveness of life insurers in a rapidly evolving financial services marketplace,” ACLI says.

Beth Climo, executive director of ABIA, says that in light of the Sept. 11 terrorist attacks, it is now more clear than ever that insurance is a national business and that the federal government needs to expand its understanding of insurance.

The Schumer bill, she adds, will address important deficiencies in the state regulatory system.

The NAIC said in a statement that optional federal chartering is unnecessary.

“Our goal has been?and continues to be?creating a 21st century regulatory system that not only makes it easier for companies to get products to market and gives consumers more choices, but also enhances the protection of the very policyholders we are charged with protecting,” NAIC said.