Two House members have introduced the National Insurance Consumer Protection Act, a bill that would give insurers the option of adopting a federal charter.

The bill was introduced by Reps. Melissa Bean, D-Ill., and Rep. Edward Royce, R-Calif., lawmakers who introduced an optional federal charter bill in the previous Congress.

Advocates of the OFC approach want to let insurers choose between sticking with state charters and state regulation, or going with a new federal regulatory system.

The Bean-Royce bill would establish a “parallel, national system of regulation and supervision for insurers, insurance agencies, and insurance producers, similar to the dual banking system,” according to a summary distributed by Bean and Royce.

Regulated entities could choose between national or state regulation, unless the national commissioner and a newly created systemic risk regulator determine that an insurer is “systemically important,” in which case regulators could require the insurer to be nationally regulated, according to the bill summary.

The bill also would:

- Create an Office of National Insurance at the Treasury Department. The office would be responsible for issuing charters for life, property-casualty, and reinsurance companies, as well as licenses to producers. It would have a commissioner appointed by the president for a 5-year term, subject to Senate approval.

- Permit the national insurance commissioner to subject insurers to examinations every 2 years, and producers to examinations in response to a complaint or evidence of violation of a law or regulation.

- Give the national commissioner enforcement powers patterned after those available to federal banking agencies.

- Require state and national commissioners to share information with a systemic risk regulator, who would be able to make “corrective action recommendations” to the national and state commissioners “to mitigate or avoid actions taken by an insurer or affiliate that would have serious adverse effects on economic conditions and financial stability.”

- Authorize the systemic risk regulator to circumvent an insurance regulator in some “emergency circumstances.”

- Set up a federal Division of Consumer Affairs, which would in turn establish offices in each state to act upon questions and complaints involving federally regulated insurers.

- Establish a Coordinating National Council for Financial Regulators, chaired by the Treasury secretary. The council would “serve as a forum for financial regulators to collectively identify and consider issues related to the health and competitiveness of the financial services industry.”

- Adopt some model acts approved by the National Association of Insurance Commissioners, Kansas City, Mo., as the basis for federal insurance laws or regulations.

Bean and Royce cite the problems at American International Group Inc., New York, as a reason for the federal government to take a more active role in insurance regulation.

The federal government is already heavily invested in the insurance industry but has no control over it, Royce says.

Life insurance industry groups are welcoming the bill.

Frank Keating, president of the American Council of Life Insurers, Washington, comprehensive reform of the financial regulatory system “is a given.”

“The establishment of a functional insurance regulator at the federal level as envisioned by the Bean-Royce bill is an appropriate and essential adjunct to broader reform efforts,” Keating says.

The National Association of Insurance and Financial Advisors, Falls Church, Va., says the NAIFA National Council “nearly unanimously voted to support the concept of an OFC” in September 2008.

“We are particularly happy with the enhanced consumer protection provisions of the bill, such as the inclusion of the NAIC Unfair Trade and Unfair Claims Settlement Practices acts, as well as the call for increased accountability to Congress for the processing of complaints through the Office of National Insurance’s Division of Consumer Affairs,” NAIFA President Cliff Wilson says.

Other groups welcoming the bill include as the Council of Insurance Agents & Brokers, Washington; the American Bankers Association, Washington; the American Bankers Insurance Association, Washington; and the Financial Services Roundtable, Washington.