SENATE COMMERCE REVISITS FEDERAL REGULATION OF INSURANCE.

Taking one more dig at the insurance industry before he retires at the end of the 108th Congress, Sen. Ernest "Fritz" Hollings (D-SC) got the Senate Commerce Committee to consider his bill to impose federal regulation on the industry and remove its antitrust exemption.

"First, the insurance industry itself comes to Congress asking for bailouts and backstops with increasing regularity," Hollings said in his opening statement at the hearing Oct. 2.

"Then, the industry turns around and asks for further deregulation, and even the ability to pick their regulator, when there are significant problems in the market that calls for more vigorous oversight," continued Hollings, who is a former chairman of the committee and now its ranking Democrat.

His bill, S. 1373, would establish an independent Federal Insurance Commission within the Commerce Department. Five commissioners serving seven-year terms would regulate property/casualty as well as life insurance.

The commission would be responsible for licensing and standards, regulation of rates and policies, annual examinations of companies and solvency reviews.

The bill also would set up a national guaranty corporation to make good on claims of failed insurers and repeal the McCarran-Ferguson Act of 1945, which provides an antitrust exemption for the business of insurance.

The bill has the support of the Foundation for Taxpayer and Consumer Rights, a California-based nonprofit that has its roots in Proposition 103 - the initiative passed by the state's voters in 1988 rolling back rates, imposing prior approval of rates and calling for the insurance commissioner to be elected.

"This proposal reflects many of the provisions of California's Proposition 103, which have provided a stable and affordable insurance market for the past 15 years in California, a stark contrast to the skyrocketing prices and industry turmoil that characterizes the property/casualty marketplace in many other states," the foundation's Douglas Heller said in his testimony.

Another frequent industry critic, J. Robert Hunter of the Consumer Federation of America, said the prime concern of consumers isn't whether regulation is at the federal or state level, but rather whether it is effective and efficient.

"Only one bill before Congress considers the consumer perspective in its design, adopting many of the proposals made in our white paper. That is S. 1373 by Sen. Hollings," Hunter said.

Not surprisingly, however, state insurance commissioners and much of the property/casualty industry were opposed.

"To our knowledge, every legitimate complaint regarding inefficiency and redundancy in the state system has been effectively addressed by our new regulatory modernization action plan" being phased in over the next five years," said Ernst Csiszar, South Carolina insurance commissioner and vice president of the National Association of Insurance Commissioners.

Csiszar said federal involvement might bring more problems than it solves.

"Any new federal regulator would undoubtedly have the power to preempt state laws that might disagree with the laws governing policyholders and claimants of federally chartered insurers," he said.

"At the very least, this situation will lead to confusion. As worst, it will lead to two levels of consumer protection based upon whether an insurer is chartered by federal or state government."

Some insurers doing business nationwide - represented by the American Council of Life Insurers, the American Insurance Association and the American Bankers Insurance Association - are pushing an optional federal charter, leaving state charters in place for companies that prefer them.

"AIA believe that optional federal chartering will benefit consumers and boost the competitiveness of the insurance industry," said AIA's Craig Berrington. The plan would set up a new agency in the Treasury Department that wouldn't regulate rates but would regulate for solvency and market conduct.

But other property/casualty trade associations - the Alliance of American Insurers, National Association of Independent Insurers and National Association of Mutual Insurance Companies - are opposed to any federal role.