The Ohio Legislature has given an embarrassing blow to Rep. Michael Oxley, R-Ohio, chairman of the House Financial Services Committee.[@@]

The House Insurance Committee in Oxley’s home state Tuesday passed a resolution asking Congress not to enact legislation that would impose federal standards on insurance regulation.

The panel voted 14-1 to ask the state Legislature to pass the same resolution and send it to the leadership of both parties of Congress.

One of the lawmakers who voted for the resolution was a state representative from Oxley’s own district.

Oxley was not available Tuesday to comment, according to a committee aide. But a veteran industry lobbyist, Joel Wood of the Conference of Insurance Agents and Brokers, Washington, called the Ohio resolution “misguided” and said it was unlikely to have any impact on the committee’s decision whether to act or not act on the State Modernization and Regulatory Transparency Act proposal.

Oxley and Rep. Richard Baker, R-La., chairman of the panel’s key Capital Markets Subcommittee, are on target to release a new draft of the SMART bill sometime this summer, according to industry lobbyists.

It is unclear what the full Ohio Legislature will do with the draft resolution.

The committee is currently working with industry trade groups and the National Association of Insurance Commission, asking for input title by title, in hopes of creating a consensus on the bill. A letter prepared by the staff of the NAIC providing a detailed critique of the bill was apparently forwarded to the committee staffers late last month, but has not yet become available.

The resolution contends that “State Legislatures are more responsive to the needs of their constituents and more knowledgeable regarding the market conditions in their own states and the necessary insurance products and regulations to meet those market conditions.”

The resolution noted that premium levies in Ohio totaled $404 million in 2003, and contended that the proposed federal law “would undermine state sovereignty, threaten the power of state legislatures, governors, insurance commissioners and attorneys general to oversee, regulate and investigate the insurance industry …” It also said the SMART bill would “limit the states’ ability to protect the interests of their constituents …”

Defending Reps. Oxley and Baker’s efforts, Mr. Wood said that “state legislators want to preserve turf should not come as a surprise to anybody.”

But he said the Ohio panel is “very, very misguided if they think that the proposed SMART Act is destructive to state insurance regulation – precisely the opposite is true.”

Mr. Wood said that, “Ohio’s former insurance director, and former president of the NAIC, Lee Covington, agrees with Mike Oxley on this point. He understands insurance regulation and the challenges facing it, and he understands that there are simply many areas of state-by-state insurance law that are totally at cross-purposes with the national and international nature of the insurance marketplace.

“The paradox is that there are many players who think that the SMART Act doesn’t go nearly far enough – that Congress should enact federal regulation to supplant state regulation,” Mr. Wood said. “In the absence of common-sense, middle-of-the-road reforms like SMART, arguably the closer we get to a full federalization.”