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ACLI: OFC Effort Is Making Progress, But Work Remains

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The insurance industry has made significant progress towards the enactment of optional federal charter legislation in 2006, but there is still a long way to go.

That was the essence of comments made by lobbyists for the American Council of Life Insurers, Washington, while speaking at the group’s annual meeting in Orlando.

“We’ve made a lot of progress this year,” said Kim Dorgan, executive vice president of federal relations for the ACLI.

Ms. Dorgan noted that bills establishing an optional federal charter for insurers have been introduced in both the House and the Senate. She added that the measure has strong bipartisan support in the Senate. In discussions with Senate staffers, Ms. Dorgan said a recurring theme is that the federal charter option is “an issue that’s time has come.”

The House version of the bill was introduced by Rep. Edward Royce, R-Calif., who Ms. Dorgan said is a strong supporter of the federal option. The measure’s main Democratic supporter, Rep. Paul Kanjorksi, D-Penn., is “not quite there on property and casualty,” she noted, but is a strong supporter of the federal option for life insurance.

Rep. Kanjorksi is in line to assume control of a key House Financial Services subcommittee should the Democrats win control of the House in November, but Ms. Dorgan noted that the Republicans maintaining control would also put key supporters of the federal option in charge of the relevant committees.

“Regardless of who has the majority, we’re in a very good position,” she said.

Despite the increasing support, Ms. Dorgan acknowledged that enactment of a federal charter option is not in the near future, predicting that passage by both chambers could take from 2 to 4 years, and perhaps 5, depending on how the ultimate bill is crafted.

Gary Hughes, executive vice president and general counsel, said that with legislation introduced, “the political people have made it possible for the substance people to get involved again” and work to resolve issues that could weaken support for the federal option within the industry. “We have a number of companies that for the first time are taking a good look at the bill” and seeing how it would affect their business, he said.

For the most part, Mr. Hughes said, the current federal charter bills “track closely with what the industry has done.”

However, he noted that the current versions “by no stretch of the imagination” should be expected to remain unchanged, and that the ACLI has been working with its members to craft a series of recommendations for when the bill is reintroduced in the next Congress.

Those recommendations, he said, will be largely guided by 2 key principles: charter neutrality and exclusivity.

Charter neutrality, Mr. Hughes explained, will ensure that opting for federal regulation will not provide any additional benefits, such as a tax advantage, other than the uniformity of having one regulator.

“The decision of whether to exercise the option or not should be driven by the number of jurisdictions that you’re operating in, or other factors involving how your business operates,” he said, and should not be based on “external factors,” such as tax issues.

While charter neutrality ensures that the playing field between state and federal regulation remains level, the exclusivity principle is meant to ensure that an insurance company is on only one of those fields at a time. “If you choose to remain state regulated, then what the federal regulator is going to do shouldn’t be a concern for you,” Mr. Hughes said.

While support for enacting a federal option for life products alone may have support in Washington, Mr. Hughes said that enacting such a proposal would not necessarily be better, or easier. Although the “Capitol Hill equation gets a lot simpler” under such a proposal, the debate within the industry would increase, creating more conflict that could confuse the issue. Conversely, he said, health lines have been excluded from the optional federal charter discussion because their inclusion would increase the number of committees necessary for the legislation to move through and the number of advocacy groups that would demand a say in crafting the legislation.

Ms. Dorgan said that some on Capitol Hill have sought out a compromise between a federal life charter and one for property and casualty lines. Cautioning that she “doesn’t believe this has legs,” she said some in Congress have raised the idea of a staggered implementation, with only life products having the federal option initially and property and casualty products gaining the option after the system has been solidly established.

Ultimately, Mr. Hughes said, what lines will be included in the bill and when their charters will be available for insurance companies is, like much in Washington, at the mercy of lawmakers.

“Hill politics will dictate the question of how broad this is,” he said.