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If recent congressional activity is any indication, the notorious misdeeds of a former Connecticut financier could be the impetus leading to the establishment of federal regulation of the insurance industry. A subcommittee of the House Commerce Committee hosted hearings on Sept. 19 to determine ways to establish uniformity and promote efficiency in the regulation of the insurance industry. The need for reform is uniformly acknowledged on all sides of the debate, but opinions differ as to the solution. A report issued during the hearings by the U.S. General Accounting Office said that insufficient state regulatory oversight allowed Martin Frankel to defraud insurance companies in five states of more than $200 million. Those findings have given federal legislators like Rep. John Dingell, D-Mich., a platform from which to reintroduce the debate on federal regulation. Many Democrats have long favored federal regulation, and a push for reform was mounted in the early 90s. That debate came to a sudden halt in 1995 when Republicans gained control of Congress. Current developments, however, have dissolved partisan boundaries on the issue. Recently, two influential Republicans — Reps. Tom Bliley, R-Va. and Mike Oxley, R-Ohio — publicly stated that Congress might be ready to consider federal regulation. The Republicans’ shift on the issue can be attributed to market pressure generated in a progressive economy and the subsequent appeals for uniformity from the insurance industry. In the wake of the Gramm-Leach-Bliley Act of 1999 (GLB), a complex package of federal legislation which broke down regulatory barriers and allowed the merging of financial institutions, insurance companies have instigated a collaborative push for regulatory reform. The industry’s call for reform comes in response to increased competition from other financial service providers, which, having streamlined standards already in place, are able to innovate more rapidly than their insurance competitors, giving them a competitive advantage, say insurers. In a concerted effort to avoid the possibility of federal regulatory oversight, state insurance commissioners across the nation have mounted their own vigorous campaign to establish uniformity among state regulations. The National Association of Insurance Commissioners (NAIC) has been pushing a reform agenda in an effort to preempt federal regulation. Connecticut Insurance Department Commissioner Susan Cogswell has put her agency on the frontlines of that campaign. “States are well-equipped to regulate insurance,” says Cogswell, but she is also pragmatic in her outlook. “We see regulation changing, and we want to be a part of that discussion and have a say in the regulation, rather than having it passed without our participation.” Insurance companies complain of the time and expense required to comply with a patchwork of state regulations under the current system of 51 jurisdictions. But, with the exception of a few industry groups — such as the American Council of Life Insurers, which supports a dual charter system similar to the banking industry’s — most support uniform state regulation over federal regulation. Although Gramm-Leach-Bliley leaves intact states’ authority to regulate the insurance industry, certain elements of uniformity are mandated within its clauses, particularly in the area of insurance producer licensing. The licensing provision of GLB requires that at least 29 state jurisdictions adopt reciprocity and uniformity by 2002, or federal oversight of insurance producers will kick into effect. According to Professor Thomas Baker, director of the University of Connecticut’s Insurance Law Center, the legislation sets an important precedent. “With GLB, the government has put its toe in the water of uniform regulation,” he says. “For a whole host of reasons, state insurance commissioners and insurance companies have resisted mandated uniformity, and now that line in the sand has been crossed.” Cogswell is also moving her agency aggressively forward in creating a model of state compliance. “In our legislative package,” she says, “we are going to present a model of producer licensing so that Connecticut will hopefully be one of the first states to meet requirements under GLB.” Baker says if Cogswell can’t create a model for compliance, “I don’t think anyone is going to be able to.”

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