A proposal to create an Office of National Insurance is being fine-tuned, as its sponsors determine whether to make a federal charter optional or mandatory for insurers who are deemed “systematically significant,” according to one of those sponsors

Melissa Bean

Rep. Melissa Bean (D-Ill.) and Rep. Ed Royce (R-Calif.) plan to co-sponsor the National Insurance Modernization Act (NIMA) in the next several weeks, according to comments Bean made at the 2009 Insurance Reform Summit, sponsored by Networks Financial Institute at Indiana State University.

Bean told attendees the bill will contain language requiring a physical branch of the Office of National Insurance (ONI) in every state. The bill also would create a systemic risk regulator with the authority to oversee insurance firms defined as “systemically important.” Bean said the scope of the proposed systemic risk regulator’s authority is still under discussion as well as the definition of the term “systemic risk.”

Bean said the definition is still being debated. “As with many issues, the devil is in the details,” she added.

She suggested that the act will foster new product innovation and improve the ability for insurance firms to bring new products to market in a timely manner. She said the bill would facilitate and enhance free-market pricing and provide the industry with a national voice to speak on national issues, such as tax policy, international issues and when large-scale crisis affecting insurance such as Hurricane Katrina occur.

Bean noted that the current insurance regulatory structure has created redundancy and lowered choice for consumers. “I don’t hear people saying we need more regulation; I hear them saying we need better regulation,” she said.

Bean suggested that the current regulatory structure has been lacking in “issues of efficacy” and that the problems currently impacting the greater financial services environment can be attributed in part to a lack of structure that anticipated systemic risk.

“We’re really looking for better effectiveness. Consumer protection must be consistent and robust,” Bean said.

Another speaker at the event, Rep. Spencer Bachus (R-Ala.), ranking minority member of the House Financial Services Committee, said he supports an incremental approach to insurance regulatory reform.

He said state insurance commissioners have been effective at ensuring that insurance firms are well capitalized and maintain adequate reserves.

“In a global economy, it’s very hard to get products out and maintain a sensible, efficient system,” Bachus said.

Bachus said he was cautiously supportive of creating an Office of Insurance Information (OII), which was proposed last year by Insurance Subcommittee Chairman Paul Kanjorski (D-Pa.) and supported by former U.S. Treasury Secretary Henry Paulson. While he expressed concern that the OII needs to be better defined, he said that such an office might have been able to detect early indications of problems at AIG.

Industry association and corporate leaders, including those representing the Financial Services Roundtable, National Association of Mutual Insurance Companies, American Council of Life Insurers, Independent Agents & Brokers of America; National Organization of Life and Health Guaranty Associations and National Conference of Guaranty Funds, as well as Therese Vaughan, CEO of the National Association of Insurance Commissioners, spoke at the event, held in Washington, D.C., recently.