U.S. Rep Frank wants federal charter for life insurers

House Financial Services Committee Chairman Barney Frank called yesterday for creating an optional federal charter for life insurance companies.

Speaking at a news conference yesterday afternoon to discuss his committee’s agenda for the next few months, Mr. Frank said he wants life insurers to have the option of being regulated by the federal government. Insurers, including property-casualty insurers, have been calling for such an option for years. Currently, they are regulated by state regulators, who have fiercely resisted losing control of the industry.

Mr. Frank said that in discussing international financial service regulatory coordination, U.S. officials are likely to be asked about an optional federal charter for insurance by European regulators. It is “overwhelmingly likely” that financial service regulatory reform will include an optional federal charter for life insurance, he said.

“Life insurance has increasingly become a financial product,” Mr. Frank said. Because of European concerns about having to deal with separate jurisdictions in the U.S. concerning life insurance regulation, “We will have to think seriously about whether or not to do an optional federal charter for life insurance,” he said.

But, he added, an optional federal charter is not likely to be extended to other types of insurance. “I do not see Congress getting in the automobile insurance business,” he said.

Life insurance is widely viewed as being the most appropriate segment of the insurance industry to be eligible for federal regulation, because its products do not vary by state or region, as property-casualty products do. It is a $5 trillion industry, which includes individual life, group life, long term care, disability and retirement products.

The American Council of Life Insurers responded to Mr. Frank’s comments late Thursday. “Life insurers do business across state lines and national borders,” ACLI president and chief executive Frank Keating said in a statement.

“It is no longer acceptable to have a regulatory system that walls off the federal government from any oversight of an industry that plays such a large and vital role in the American economy,” he said.

Having a federal regulator would give the insurance industry more of a voice in the federal government as well, Mr. Keating said.

“Chairman Frank’s statement is another step on the road towards a modern, responsive insurance regulatory system, but a major step,” he said.