Optional Federal Charter

While we’re on the subject of regulation, today we’re responding to a reader’s request to blog about the bill introduced on Capitol Hill last week by Republican Senator John Sununu and Democratic Senator Tim Johnson. The National Insurance Act of 2007 would create an optional federal charter for insurers. The measure is similar to a bill introduced by the two Senators in April 2006. Those of you familiar with I.I.I. will be aware that the Institute does not lobby, leaving that role to our advocacy trade colleagues. The state system of insurance regulation in the U.S. began when the Constitution gave Congress the right to regulate commerce among the states. However, the question of state versus federal regulation has been bubbling ever since. As with many of the issues we tackle, this is one that elicits a range of viewpoints and there are pros and cons of both systems. So, with that in mind we welcome your comments and tip you to the I.I.I.’s online update on modernizing insurance regulation.  

2 thoughts on “Optional Federal Charter”

  1. OFC is necessary to create a free market for Insurance in the US. It will reduce costs for the Carriers, savings that can be passed on to policyholders. Key is building analytics to quantify and prove value. Complexity magnified by the different products in the different states subject to different Tort Laws. ISO is a source of input data to start building this model. The model will help justify the Bill and help Congress pass the bill.

  2. Come on guys, the prospects for and need for an optional federal charter (“OFC”) for insurance companies has been the subject of considerable debate for the past decade or more. Given the tumult in the financial markets, and the recent federal financial assistance and the equity position Treasury has taken in AIG, there has been considerable posturing related to the OFC in the past several weeks, and there will likely be continued developments in that arena in the coming months.

    By way of background, in May 2007 (as mentioned here), Senator Sununu (R-NH) and Senator Johnson (D-SD) introduced S. 40 entitled “The National Insurance Act of 2007” (“S. 40”). The provisions of S. 40 are very similar to previous OFC bills Congress has considered dating back to 2001. Under S. 40, and a companion bill in the House (H.R. 3200), there would be an OFC and insurance would be overseen at the federal level by the National Insurance Commissioner, who would be appointed by the President for a five-year term. Under S. 40, a dual regulatory structure would be created under which insurance companies could determine whether to be chartered under federal or state law. An Office of National Insurance would be created within Treasury to support the regulation of insurers.

    More recently, the Treasury Department’s Blueprint for a Modernized Financial Regulatory Structure (“Blueprint”) also developed a structure for an OFC and federal regulation of insurance.8 While the Blueprint was careful not to suggest that it concurred with all aspects of S. 40, instead setting forth general guiding principles for federal insurance regulation, the general structure recommended followed the major principles of S. 40. Under the Blueprint, Treasury recommended as “intermediate steps” the establishment of a federal structure to allow for an OFC; and the creation of an Office of National Insurance within Treasury. In addition, the Blueprint called for Congress to create an “Office of Insurance Oversight” within Treasury as an interim step to establish a federal presence on regulatory and international insurance issues.

    This is a hot topic again and I’m sure the debate will continue.

    James Charters

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