State insurance regulators and a major property-casualty trade group are exchanging words over the benefits of an optional federal charter proposal.

The exchange began when the American Insurance Association, Washington, criticizing a statement opposing the OPC proposal by Sandy Praeger, Kansas insurance commissioner and president of the National Association of Insurance Commissioners, Kansas City, Mo.

Praeger presented her view in an opinion piece, “Federal Bill Unnecessary,” published on the Kansas Insurance Department Web site Feb. 7.

In a Feb. 13 letter to Praeger, the AIA argued that insurers need a “modern and efficient regulatory structure” and that this can only be achieved by giving insurance companies a federal charter option rather than continuing the current system of regulations only by individual states.

The letter, written by AIA president Gov. Marc Racicot, said the group has worked with NAIC and individual insurance commissioners to reform insurance regulation but that progress has been “uneven and has come about slowly.”

Racicot argued in the letter that states would continue to receive premium tax revenue with an OFC and pointed out the charter was optional. He noted, moreover, that even with an OFC, consumers could still decide whether to buy insurance from a state or federally regulated insurer, much the way that they do with banks.

States would retain authority over insurers that opted out of the charter, and because the agency’s regulator would be appointed within the Department of Treasury, there would not be a new layer of bureaucracy, Racicot maintained. Moreover, he argued, start-up costs for an Office of National Insurance would be paid through assessments on insurers.

In her response, Praeger argued that property-casualty insurance is “a local product with local issues that requires a responsive, local regulator to help resolve consumers’ complaints and address their concerns.”

Praeger contended that it would take “quite an imagination to assume the Treasury Department could assume even a partial role in regulating insurance without creating a huge bureaucracy.” She claimed, too, that an OFC would allow insurance companies to opt out of comprehensive consumer protections afforded by state oversight.

“Current proposals would gut consumer protection, while outsourcing most critical regulatory functions to an industry-run self-regulatory organization,” she said.

Allowing insurers to pick their regulator would create a “race to the bottom” for the industry, she added. “The push for an OFC is, in reality, nothing more than a call for little or no regulation,” she stated.

AIA’s letter came on the same day as an announcement by the National Conference of Insurance Legislators, Troy, N.Y., that it would consider a resolution opposing S. 40/H.R. 3200, the National Insurance Act, during its spring meeting in Washington Feb. 28-March 1.