Overview: Industry Leaders Weigh in on OFC Proposal by Treasury Department

The US Treasury Secretary Henry Paulson on Monday announced the department's blueprint to overhaul financial regulation, including establishing federal insurance regulator. Even before the official announcement early yesterday morning industry leaders began weighing in on the proposed of an optional federal charter (OFC), and after the announcement there has been plenty of to say.  
 
According to the blueprint, the proposed legislation creating a federal insurance regulatory structure would "reestablish the federal government's role in regulating the insurance industry by reclaiming a portion of its delegation of insurance regulation to the states, thereby creating a dual federal-state regulatory structure."  
 
The plan would introduce a system of optional federal chartering (OFC), licensing, regulation, and supervision for insurers, reinsurers, and insurance agents and brokers.  
 
Sandy Praeger, president of the National Association of Insurance Commissioners (NAIC), came out opposing the plan before and after the announcement. While commending the efforts to find solutions to the financial problems that have been occurring, she wants hands off insurance regulation: “Clearly, the current climate of less regulation and less accountability has led to the turmoil affecting broad sectors of our nation’s economy. We agree that federal action to look at system risk is long overdue. We agree that the federal government needs to remodel their financial regulatory house, but they need to leave the insurance “room” alone! “While we certainly support better coordinating and modernizing of their oversight efforts, “Modern” does not mean “Federal.” State insurance regulators are marginalized in this report and, frankly, for our sector it looks more like a solution in search of a problem. [See more of her statement in a related article in Daily Newsflash.]  
 
The IIAA is also less than supportive of the OFC proposal, as reflected in President and CEO Robert Rusbuldt's statement:  
 
"While there may be some merit in the role envisioned for the Fed to identify and facilitate corrections of systemic problems in the financial services industry, the OFC section of the blueprint is clearly swimming upstream. It’s hard to see Congress supporting a proposal that calls for massive deregulation of the industry and a huge new federal bureaucracy. The Treasury Department has not recognized the fact that the current insurance regulatory system has functioned effectively to protect consumers and the safety and soundness of the industry. While the Treasury’s recommendation does not come as a surprise since they would become the new federal insurance regulator, proposing a massive overhaul of insurance regulation when the insurance market is one of the few stable sectors in the financial services industry seems odd to many. Clearly, we need more uniformity and efficiency in our regulatory system, but there are better ways to achieve this reform with less risk for the market."  
 
Gov. Marc Racicot, president of the American Insurance Association (AIA), commended the Treasury's proposal, clearly taking the other side of the argument: "The inclusion of an "Optional Federal Charter" for insurance, as outlined in the Treasury blueprint, is a major milestone in that it recognizes the important role that the insurance industry now plays in this new financial world of integrated and interconnected markets.  
 
"Providing insurers with the option of a single regulator for insurance will benefit consumers and will be more efficient, effective and rational given the "increasing tension" a state-based regulatory system creates."  
 
The Council of Insurance Agents & Brokers also applauded the government's plan for an OFC:  
 
"Insurance is an increasingly global