Federal Charter Hearings Expected In June

The principles say that the current state system, with its lack of uniformity, is unnecessarily costly and burdensome for companies, agencies and consumers.

An optional federal system, the principles say, would resolve this problem if done correctly.

The principles say that insurance companies must have the option of obtaining a single charter that would allow them to conduct business nationally and to be subject to exclusive regulation by the federal government.

However, the principles say, insurers must be allowed unconditionally to convert from a state charter to a federal charter or from a federal charter to a state charter.

Moreover, the principles say, all insurers, whether federal or state chartered, would be subject to the existing state guaranty fund system.

Federal insurers would also remain subject to state premium and corporate taxes.

The principles add that a holding company must be allowed to control both federally-chartered and state-chartered subsidiaries.

A federal charter must accommodate all lines of insurance, the principles say, and be available to all insurers regardless of corporate form.

The charter must reflect the differences among life insurance, health insurance and property-casualty insurance, the principles say.

In addition, the principles say, there must be federal licensing of producers.

The federal regulator, the principles say, should be a discrete bureau housed in the Treasury Department. The bureau would be headed by a presidential appointee who serves for a fixed term.

The regulatory authority, the principles say, would focus on strong solvency oversight. Competitive forces should establish premium rates, rather than government price controls, the principles say.

Approval of policy forms, the principles say, should be done expediously so as to avoid delaying the development of new products.

Turning to consumer protections, the principles say that federal insurers must be subject to strong market conduct oversight.

As for antitrust issues, the principles say that the McCarran-Ferguson antitrust immunity should not apply to federally-chartered insurers.

However, the principles add, limited safe harbors should be provided for legitimate joint activities.

Despite all the movement surrounding OFC, it is highly unlikely that Congress will enact legislation soon.

Even the strongest advocates of OFC say that creating an optional system is a multiyear process.

Reproduced from National Underwriter Life & Health/Financial Services Edition, May 20, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.