Legislation modernizing the insurance regulatory system will be introduced this spring in both the House and Senate, but the likelihood of passage this year is considered slim at best.

That was the word from congressional staffers attending the Third Annual Insurance Summit, held here March 1. However, all those participating in the summit voiced doubt that action on such legislation could occur this year. Indeed, the huge differences in viewpoints voiced by those attending the summit indicate that bridging the gaps and broadening the role the federal government plays in insurance regulation–if any–could be years away.

For example, industry lobbyists, congressional staffers and Rep. Paul Kanjorski, D-Pa., ranking minority member of the House Financial Services Committee’s Capital Markets Subcommittee, all made clear that teeing the issue up for prompt action in the next Congress was all that was likely to be accomplished. That will include hearings on the issue before the Senate Banking Committee, a committee staffer said.

But, based on comments by those attending, the bills to be introduced in each chamber will be materially different, and there is disagreement as to the appropriate approach toward federal regulation between Democrats and Republicans in the House.

Moreover, in comments at the summit, Alessandro Iuppa, Maine superintendent of insurance and president of the National Association of Insurance Commissioners, said reform was needed but that federal involvement would create more problems than it would solve.

The NAIC’s attitude and apparent decision not to cooperate with bill-writing efforts doesn’t sit well with the leadership of the House Financial Services Committee.

Although Glenn Westrick, counsel to the leadership, spoke before Iuppa, he made clear that the committee had become impatient with NAIC’s strong criticism of its draft legislation and the seeming unwillingness to work with the committee to fashion legislation acceptable to both industry and regulators.

“Simply saying ‘no’ to any reform action is simply not an option,” Westrick said. “The regulatory system is in dire need of reform.”

He added that the current system “is inefficient, needs greater transparency and greater coordination.”

The Treasury Department made clear it isn’t ready to take a position.

Emil Henry Jr., assistant secretary for financial institutions at the agency, declined to indicate whether the Bush administration will support any legislation, or what kind of legislation it will support.

Moreover, J. Kevin McKechnie, associate director of government relations for the American Bankers Insurance Association, which is spearheading the effort for legislation creating an optional federal charter, raised another issue. Questioning Iuppa, McKechnie contended that state regulators had increased the rate of market conduct examinations for insurers whose officials had testified on the issue before Congress. Iuppa denied there had been retaliation, although he did not reject the allegation out of hand but did “commit” himself on behalf of the NAIC to a policy of no retaliation against insurers for supporting federal regulation.

Iuppa also “recognized that market conduct is not where it should be,” but said that should change as the number of states, now 26, that have joined an interstate compact on the issue expands.

The Senate bill will call for creation of an optional federal insurance charter for both life and property-casualty insurers, said Jamie Burnett, legislative director to Sen. John Sununu, R-N.H., primary sponsor of the bill, with Sen. Tim Johnson, D-S.D.

The bill will call for creation of an independent federal regulator within the Treasury Department, similar to that of the Office of the Comptroller of the Currency.

Gary Hughes, executive vice president and general counsel of the American Council of Life Insurers, said later during the summit that one advantage of the Senate bill is that the system will have no impact on the federal budget. He said the industry has agreed through the legislation to pay the cost of federal regulation through fees, the same system used by national banks, and even to pay the cost of establishing the system within Treasury.

Under the plan, Burnett and Hughes said, the state guaranty fund system would remain in place, presumably with the states serving as liquidators for an insolvent federally chartered insurance institution.

In the House, legislation will be introduced calling for creation of so-called federal “standards” or “tools” designed to bring uniformity to state regulation. Dubbed the State Modernization and Regulatory Transparency Act (SMART), it has been in the works for several years.

Primary sponsors of this bill are Reps. Mike Oxley, R-Ohio, and Richard Baker, R-La., chairman of the House Financial Services Committee and chairman of its key Capital Markets subcommittee, respectively.

Charles Symington, senior vice president, government affairs and federal relations, at the Independent Insurance Agents and Brokers of America, voiced support for SMART as providing an incentive for appropriately modernizing the state regulatory system.

But he said independent agents oppose creation of an optional federal charter for a number of reasons, including the fact it would “have a deleterious impact on consumers” and make it more difficult for agents to get answers from regulators on issues that crop up from time to time.

But of particular concern to agents, he said, was that creation of an optional federal charter could require agents to be licensed by both state and federal regulators because agents would be dealing with insurers regulated by the states as well as those regulated by the federal government.

Kanjorski also said the best long-term approach would be for an optional federal charter, especially for life insurers.

Hughes dismissed as a “red herring” claims by state regulators that the ability of states to tax insurers would be reduced if an optional federal charter system was adopted. “That just doesn’t hold water,” he said.

National banks pay state taxes and all OFC proposals make clear state taxing authority will not be impacted, he said.