New York Life's Sternberg favors reform over federal regulation.

Sy Sternberg, chairman, president and chief executive officer of New York Life Insurance Co., said that since he is no longer chairman of the American Council of Life Insurers, he can say how he really feels about federal regulation of insurance--he's not convinced it's the best approach.

The ACLI board agreed last year to put out a proposal for an optional federal charter of life insurers, and even while that decision was being made by the board, Sternberg said he kept warning and making the point "countless times" that the ideal alternative always looks better than reality. The reality, he said, is you don't know what your alternative will look like in the end.

A federal regulation proposal by Rep.John LaFalce, R-N.Y, is an example of a bill that has "things we don't want" and many "nonideal concepts," he said.

A host of different agendas on Capitol Hill will likely result in an assortment of ideas for federal legislation. Liberals want community investment standards applied to insurers. Consumers haven't been heard yet, "and they support state regulation," Sternberg said.

Streamlining the state regulatory system is the better way to go, Sternberg said during a conference on international insurance issues hosted by the National Association of Insurance Commissioners.

Modernizing the state system by eliminating both the "frustrating" agent licensing system and the practice of each state doing its own market-conduct examinations also would help when the United States negotiates with other countries to open their markets.

Other countries see the U.S. state regulatory system as conflicting and redundant, Sternberg said. Reform is particularly important, now that the United States is about to negotiate insurance regulations with the World Trade Organization and has to have a bargaining chip. A modernized state regulatory system would give the United States a strong hand at the table, Sternberg said.

Sternberg's company would benefit from reform, as well. New York Life International was formed four years ago with $1 billion in capital, with the focus on emerging markets with a growing middle class, Strenberg said. Almost 30% of New York Life's new policies now come from overseas markets, including three Latin American and seven Asian countries.

With more than 1,500 agents in India, New York Life International is among the top three life insurers in that nation, Sternberg said. The company has 2,000 agents in Mexico after entering that country two years ago, making it No. 1 in life sales, he said.

China and Vietnam are in the company's sights, and New York Life has worked with the U.S. Trade Representative on establishing normal trade relations with China and helping it enter into the World Trade Organization.

Back in the United States, Sternberg said the federal Gramm-Leach-Bliley Financial Modernization Act actually has inhibited interaction of insurance, banks and securities. Amalgamations like Citigroup Inc. are the exception.

The modernization created more stringent privacy regulations, despite the fact that if the three industries are going to converge, it's "imperative" they share information, he said, referring to mandatory mailings to consumers about privacy information.

"We're spending $2 million a year sending out notices nobody is reading," Sternberg said.

Banks also haven't rushed to buy insurance companies, because bank valuation in the stock market is higher than it is for insurance companies, he said. Banks see insurance companies as diluting their value.

Banks have figured out they can achieve their goals buying the distribution system, rather than the manufacturer, he added.

But the federal government might be of help in getting state legislatures to delegate more authority to state insurance regulators.

"I hope this delegation is voluntary, but if not, then maybe that would be a role for the federal government," Sternberg said. State insurance regulators are limited in their effectiveness by their respective legislatures, he said.

While he has made this case with state legislators in New York, he said it's tough to make the case in all 50 legislatures, so he called on the NAIC to lead the effort.

Uniformity is not a problem exclusive to the United States, he said. Global standards are lacking when it comes to the insurance industry, which needs a consistent and predictable regulatory environment, Sternberg said. Market access, caps on foreign ownership and a lack of well-defined reserve standards are also problems in some countries.

Trained and qualified regulators also are needed overseas; otherwise sound regulations can't be developed or enforced, he added.