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by Mary Orndorff
U.S. Senate Committee on Banking, Housing, and Urban Affairs
Jul 12, 2006 - Birmingham News - WASHINGTON - A brewing debate in Congress over whether state or federal officials are better equipped to regulate the insurance industry has divided Alabama-based companies, drawn criticism from the state's top regulator and put two Alabama legislators in the spotlight.

At issue is whether the current system of individual state regulators can adequately police an insurance industry that grows more national and international. A Senate committee chaired by Sen. Richard Shelby, R-Ala., held the first in a series of hearings Tuesday.

"The practical difficulties of trying to comply with 51 sets of regulations, ... it's a nightmarish way to have to do business," said Johnny Johns, the chief executive of Birmingham-based Protective Life Corp. who testified on behalf of the American Council of Life Insurers. The trade group endorsed legislation sponsored by Sens. Tim Johnson, D-S.D., and John Sununu, R-N.H., to create an independent Office of National Insurance within the U.S. Treasury Department.

Johns, in an interview after his testimony, estimated that it costs his company between $50,000 and $60,000 per year, per state, to obtain a license to do business. It adds up to millions of dollars of administrative burden that often stymies development of new insurance products for customers.

"A well-designed federal system could create opportunities for small and mid-size companies to do business nationally, which is very tough right now for companies our size," Johns said. Protective Life has about $30 billion in assets.

Status quo:

But the industry is far from united. Other companies, including Montgomery-based Alfa Insurance, prefer the current system of state oversight. Although Johnson and Sununu argued their proposal would be optional, meaning insurance companies could choose to remain state-regulated, Alfa is opposing the bill.

"We would question why you would put in a dual form of regulation," said Alfa spokesman Dave Rickey. "There's no need or benefit to add another level of regulation." Alfa and its subsidiaries do business in 13 states.

State insurance commissioners, including Walter Bell of Alabama, also are opposed to the optional federal charter because local regulators are better equipped to respond to local issues, they argued Tuesday.

"We have a much better understanding than someone in a regional office in Atlanta or a national office in Washington D.C.," said Bell, who attended the hearing as the president-elect of the National Association of Insurance Commissioners.

Bell, who has a staff of about 145 people, said states like Alabama have improved their ability to hire qualified regulators and examiners. He's concerned that a federal system would eventually steer insurance premium taxes away from Montgomery and into Washington.

Members of the Senate Committee on Banking, Housing and Urban Affairs also debated the wisdom of creating another federal office and how best to protect consumers.

"Congress has a tendency to create monsters of bureaucracies that only grow and never go away," said Sen. Jim Bunning, R-Ky. "I hope we don't rush to judgment."

Shelby, as chairman of the panel, did not announce his position on the bill but his line of questioning suggested a skepticism that states are up to the task.

"In order for the U.S. insurance market to work for American consumers today and in the future, it is essential that insurance regulation keep pace with the changes in the marketplace and technological developments," Shelby said.

The debate will also involve Rep. Spencer Bachus, R-Vestavia Hills, who is a senior member of the House Financial Services Committee and a contender to be its next chairman. Bachus has not yet taken a position on the optional federal charter proposal, his spokeswoman said.
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