Market events over the last year have escalated the debate over the best form of regulation of insurance companies, insurance agencies, and insurance producers. There are two camps: one favoring federal regulation and another favoring the current state-based system of insurance regulation.

The NAIC and state insurance commissioners assert that the state-based system of insurance regulation has been successful and that any reform initiatives should not displace the current system. In late May, more than 35 state insurance commissioners and NAIC Chief Executive Officer Therese Vaughan met with members of Congress to discuss regulatory reform and promote the state-based system over a federal insurance regulator.

Conversely, parts of the insurance industry and several members of Congress assert that lack of uniformity in state regulation as well as the goals of efficiency and modernization justify federal regulation in the form of an Optional Federal Charter. With cosponsor Ed Royce (R-CA), Rep. Melissa Bean (D-IL) introduced H.R. 1880, the National Insurance Consumer Protection Act (NI CPA) on April 2, 2009. The NI CPA would establish a system of regulation and supervision for insurers, insurance agencies, and insurance producers that would allow them to elect state or federal regulation, charters, and licenses.

The NICPA would establish an Office of National Insurance, would be charged with (1) overseeing organization, incorporation, regulation, and supervision of national insurers and insurance agencies, and (2) licensing, regulating, and supervising national insurance producers.

The NICPA would require the President to designate a systemic risk regulator for covered institutions, defined to include national insurers and insurers organized and supervised under state law.

The Obama Administration has published proposed legislation that is much less sweeping in scope, establishing an Office of National Insurance to, inter alia: (1) monitor the insurance industry and identify regulatory gaps: (2) coordinate federal efforts and establish federal policy on prudential aspects of international insurance matters; (3) determine whether state insurance measures are preempted by such international agreements; and (4) consult with the states regarding insurance matters of national importance and prudential insurance matters of international importance. The legislation also provides for the designation of certain companies for comprehensive prudential federal regulation and resolution authority. Insurance holding companies or insurance companies would be subject to such regulation only if they are designated by the Federal Reserve Board as Tier 1 Financial Holding Companies.