Order Code RS21172
Updated September 3, 2003
CRS Report for Congress
Received through the CRS Web
Optional Federal Chartering for Insurers:
Major Interest Groups
Baird Webel
Analyst in Economics
Government and Finance Division
Summary
Since passage of the Gramm-Leach-Bliley Act in 1999, Congress has focused new
attention on the question of federal chartering for insurance companies. During the
107th Congress, proposals were brought forward by Senator Charles Schumer, “The
National Insurance Chartering and Supervision Act”(NICSA), and Representative John
LaFalce, H.R.3766, “The Insurance Industry Modernization and Consumer Protection
Act” (IIMCPA). Although different in some particulars, both proposals were modeled
on the dual state/federal regulation that now exists for the banking industry and would
have given insurance companies the option to be chartered and regulated by a newly
established federal regulator rather than by current state regulators.
In the 108th Congress, Senator Ernest Hollings has introduced S. 1373, the
“Insurance Consumer Protection Act,” on July 8, 2003. Unlike the earlier proposals,
S. 1373 would create a mandatory system of federal regulation for all interstate
property/casualty and life insurers.
Insurance companies doing business in the United States have been regulated at the
state level for the past 150 years, and the various insurance related interest groups have
been largely state oriented. As a result, there is limited familiarity on the national level
with these insurance industry-related interest groups or how they differ in their positions
on federal chartering legislation. This report identifies some of the major insurance
groups and state-related organizations with an interest in federal chartering and
regulation of the insurance industry. This report, originally written in 2002 by S. Roy
Woodall Jr., will be updated as major legislative events occur.
Insurance companies comprise a major segment of the U.S. financial services
industry. However, unlike banks and other financial institutions that are regulated
primarily at the federal level, insurance companies have been regulated by the states for
the past 150 years. While there have been a number of changes in this state regulatory
system proposed at the federal level, the system has remained largely untouched by these
Congressional Research Service ˜ The Library of Congress

---

CRS-2
proposals.1 There are approximately 6,970 insurance companies and subsidiaries, based
in the U.S., and these fall into two broad segments: life/annuity/health (2,397 companies),
and property/casualty (4,475 companies).2 Some companies are organized as stock
companies, while others operate as mutual or fraternal companies. Some companies are
very large in size, while others are mid-size or small. Some companies specialize in large
commercial accounts, while others write personal lines of business such as homeowners,
automobile, or individual life and health policies. Still others concentrate on reinsurance,
or the selling of insurance to insurance companies to assist them in spreading their risks.
Perhaps contrary to general perception, the insurance industry is not a monolithic
industry, but a very competitive one serving multiple markets. Many insurance
companies and their producers/agents are members of various trade associations that
represent their interests before state legislatures and insurance regulators. It is estimated
that there are over 300 insurance-related trade associations and professional organizations
operating in the U.S. and Canada.3 Most of these organizations are state oriented, but
some are now contacting Members of Congress to express their differing positions on the
optional federal chartering proposals. These differences are due in large part to the
diversity in segments and lines of business, company structure, size, and insurance
markets in which insurers operate. The purpose of this report is to assist in understanding
the complicated issues inherent in creating a federal system of insurance regulation by
providing some insight into the major insurance associations and state-related
organizations most interested in the issue.
Life Insurance Company Associations
Life insurance is probably the premiere segment of the industry favoring optional
federal chartering, because its products are generally more national in scope. That is, life
products are based on actuarial tables of life expectancy that vary little across state lines,
and tend to be more standardized than non-life products. Major commercial banks
seeking life insurance functions, or affiliates in the insurance industry, also tend to prefer
national federal charters to match their own, and to ease their own entry into life
insurance markets nationwide. Within the life industry, it is generally the larger insurers
that seek federal chartering. Smaller insurers, serving more regional markets, tend to be
neutral or opposed.
ACLI. American Council of Life Insurers [http://www.acli.com]. ACLI is the major
trade association for life insurance and annuity companies. Its nearly 400 members
account for 70% of the life insurance premiums and 77% of annuity considerations in the
U.S. Some ACLI members also write long-term care and disability income insurance
products. The ACLI has developed its own proposal, the National Insurer Act and the
National Insurer Solvency Act, for optional federal chartering of life insurance
1 For more information on the history of insurance regulation and congressional action see CRS
Report RL31982, Optional Federal Chartering for Insurers: History and Background of
Insurance Regulation, by Carolyn Cobb and CRS Issue Brief IB10106, Insurance Regulation:
Background and Issues, by Baird Webel and Carolyn Cobb.
2 See AM Best listing [http://www3.ambest.com/ratings/RatingsSearch.asp], visited Sept. 2, 2003.
3 See one such listing at [http://www.ultimateinsurancelinks.com], visited Sept. 2, 2003.

---

CRS-3
companies, and is currently “actively working with members of Congress to have this
legislation introduced and enacted.”4 ACLI members supporting a federal charter option
emphasize that life insurance is a product that is national in scope and should not be
hampered by the current state regulatory system. Some of ACLI’s smaller member
companies which operate in only a few states have indicated that they prefer to support
an improved and modernized state system.
LICONY. Life Insurance Council of New York [http://www.licony.org]. LICONY
is the state trade association of 52 New York life insurance companies. Despite its state
focus, several of its largest members are strong supporters of federal optional chartering.
NALC. National Alliance of Life Companies [http://www.nalc.net]. NALC is an
association that represents smaller life insurance companies, most of which oppose
federal chartering. It is based in Rosemont, IL, and does not maintain a permanent
Washington presence.
Property and Casualty Associations
In the property and casualty (p&c) segment of the industry, support for federal
chartering is more prevalent among the large old-line insurers writing commercial lines
of coverages such as business property/liability insurance, medical malpractice and
workers’ compensation. Much of the rest of the industry is opposed to federal regulation
on grounds that their personal line products such as auto and homeowners insurance are
inherently local in nature, with differing state legal requirements and precedents that are
best addressed and regulated at the state level.
AIA. American Insurance Association [http://www.aiadc.org]. AIA is the leading
p&c association with more than 400 insurance company members which write more than
$118 billion in premiums each year. Its members are generally large old-line commercial
insurers. AIA is based in Washington, DC, maintains seven regional offices, and has
local representatives in every state. AIA supports federal optional charter legislation and
is the only p&c group to develop its own legislative proposal, which also incorporates
the deregulation of premium rates and policy forms.
AAI. Alliance of American Insurers [http://www.allianceai.org]. AAI, generally
referred to as “The Alliance,” is headquartered in Illinois, maintains 10 regional offices,
and represents a diverse membership of more than 340 p&c insurers, both large and
small, with commercial and personal lines of business. AAI opposes any type of federal
chartering system and maintains that p&c products are best regulated at the state level.
NAII. National Association of Independent Insurers [http://www.naii.org]. NAII,
also based in Illinois, represents more than 715 p&c insurers, maintains three regional
offices, and maintains a network of lobbyists in every state. Its member companies
account for 31% of total industry premium volume and 42.4% of the total personal lines
volume. NAII opposes federal chartering and prefers reform of the state system.
4 See
[http://www.acli.com/ACLI/Issues+nonmembers/In+Congress/Regulatory+Efficiency+and+
Modernization/Default.htm], visited Sept 2, 2003.

---

CRS-4
NAMIC. National Association of Mutual Insurance Companies
[http://www.namic.org]. NAMIC is based in Indiana, maintains an office in Washington,
DC, and represents some 1,300 insurers who write 40% ($123.3 billion) of the p&c
insurance premium in the U.S. Most of NAMIC’s members are small local or regional
mutual companies. NAMIC opposes any type of federal chartering, maintaining that to
create one would undermine the efforts already underway to reform the state-based
system.
RAA. Reinsurance Association of America [http://www.raanet.org]. Reinsurance
is best thought of as “insurance for insurance companies,” which allows primary insurers
to spread their risks and increase their capacity to write new business. Reinsurance is
recognized as a global business, and the RAA’s mission is to advance the interests of the
U.S. p&c reinsurance industry. The RAA is headquartered in Washington, DC, and
generally supports a federal chartering system.
Health Insurance Associations
Much of the health insurance segment of the insurance industry, especially that
portion writing employee benefit plans, is already directly or indirectly regulated at the
federal level. However, health insurers are still subject to state insurance laws and
regulations and there is wide diversity of opinion among them as to whether to support
federal chartering. Contrary to the situation in the life and p&c industries, it is some of
the smaller health insurers that have problems complying with differing state rules and
would like to see a uniform federal system. Some larger insurers, with the resources to
successfully comply with the rules in all states, perceive it as a competitive advantage to
remain with a state based regulatory system. Considering the diversity of opinion among
health insurers and the possibility that they would not be subject to federal chartering
initially, it is not surprising that the major health insurance trades have not taken a
position on federal chartering.
AAHP. American Association of Health Plans [http://www.aahp.org]. AAHP is the
principal association of health plans, representing more than 1,000 plans such as health
maintenance organizations (HMOs) and preferred provider organizations (PPOs) that
provide coverage for approximately 170 million Americans.
BCBS. BlueCross BlueShield Association [http://www.bcbs.com]. BCBS is the
trade association for some 43 independent, locally operated Blue Cross and Blue Shield
Plans.
HIAA. Health Insurance Association of America [http://www.hiaa.org]. HIAA is
headquartered in Washington, DC, and represents nearly 300 insurers that write health,
long-term care, dental, disability income, and supplemental health coverage.
Banking/Financial Services Associations
Bankers are perhaps the principal driving force behind legislation for federal
chartering of insurance companies. They are already accustomed to a dual regulatory
system whereby they can choose to have either a state or federal charter, with its
accompanying regulatory system. Since the passage of the Gramm-Leach-Bliley Act

---

CRS-5
(GLBA)5 banks have indicated an interest in entering the insurance marketplace either
through sales or underwriting affiliates. The major banking/financial services group
pushing for federal chartering legislation is the ABIA: American Bankers Insurance
Association [http://www.aba.com/ABIA]. ABIA was formed in 2001 by the merger of
the Association of Banks-in-Insurance (ABI) and the ABA Insurance Association
(ABAIA). It operates as an affiliate of the American Bankers Association (ABA) and
represents bank insurance interests, with both banks and insurers as members. It was the
first group to advocate a plan for federal optional chartering of insurance companies, and
has worked with the ACLI and the AIA to get broader insurance industry support. Its
revised plan served as the basis for Senator Schumer’s proposal. Other financial services
groups that might be expected to support ABIA’s legislative efforts on federal chartering
include the following:
FIIA: Financial Institutions Insurance Association [http://www.fiia.org];
FSR: The Financial Services Roundtable [http://www.fsround.org];
FSCC: Financial Services Coordinating Council [http://www.fsccnews.com]; and
FSF: Financial Services Forum [http://www.financialservicesforum.org].
Producer (Agents/Brokers) Associations
Of the four major producer organizations, only one supports federal chartering. The
others are working to develop a “middle-ground” alternative to federal chartering that
would call for the enactment of “federal tools,” such as mandated national standards, that
would then be administered by the states rather than by a federal regulatory agency. Such
an approach would preserve state regulation, but would also provide the impetus to
modernize and reform state regulation to attain the desired degree of uniformity.
CIAB. Council of Insurance Agents and Brokers [http://www.ciab.com]. CIAB is
a Washington, DC, organization that represents major commercial insurance and
employee benefits intermediaries in the U.S. and abroad. Its members place some 80%
of all U.S. commercial insurance. The CIAB is closely associated with the AIA and the
RAA and is the only producer group that supports federal chartering.
IIAA. Independent Insurance Agents of America [http://www.iiaa.org]. IIAA,
sometimes referred to as “the Big I,” is the nation’s oldest and largest independent agent
association, representing approximately 300,000 agents. IIAA is based in Alexandria,
VA, maintains a Capitol Hill office, and is affiliated with a federation of 51 state agents
associations. The IIAA opposes federal chartering, and supports a reform of the state
system backed by federal standards.
NAIFA. National Association of Insurance and Financial Advisors
[http://www.naifa.org]. NAIFA has a membership of more than 70,000 life/health
insurance agents and financial advisors, and is affiliated with a federation of 900 state and
local associations. It supports the principles underlying the state regulation of insurance,
but also supports federal action to improve this regulation.
PIA. National Association of Professional Insurance Agents
[http://www.pianet.com]. PIA represents over 15,000 insurance agencies which sell and
5 P.L. 106-102, 113 Stat. 1338 (1999).

---

CRS-6
service all kinds of insurance, but specialize in coverage of automobiles, homes, and
businesses. It is affiliated with 50 state agent organizations, and opposes federal
chartering legislation while favoring modernization of the state system.
State Regulatory/Legislative Groups
As might be anticipated in any proposal to transfer state regulatory functions to the
federal government, state-related groups oppose federal chartering, maintaining that the
states are capable of instituting the necessary reforms to the current state insurance
regulatory system. There is also a fear among these groups that a transfer of insurance
regulatory authority could result in diminished state revenues. The major state-related
group that is already actively opposing any efforts at federal chartering is the NAIC:
National Association of Insurance Commissioners [http://www.naic.org]. NAIC is the
trade association of insurance regulators from the 50 states, DC, and four U.S. territories.
It is headquartered in Kansas City, MO, and maintains offices in Washington, DC, and
New York City. NAIC’s stated goal is to make state regulation more consistent and
uniform, and it has responded to industry efforts to enact federal chartering legislation
by launching six initiatives to modernize state insurance regulation in order to prevent the
transfer of state insurance regulatory authority to a federal agency.6
Other state-related groups expected to oppose federal chartering or any other
proposal that would encroach upon state insurance regulatory authority include the
following:
NCOIL. National Conference of Insurance Legislators [http://www.ncoil.org].
NCOIL is an Albany, NY, organization of state legislators concerned specifically with
state insurance legislation and regulation, and its stated purpose is to oppose federal any
encroachment of state insurance regulatory authority.
NCSL. National Conference of State Legislatures [http://www.ncsl.org]. NCSL is
a broader based organization of state legislators that is based in Denver, CO. It maintains
an office in Washington, DC, and covers many other state/federal issues in addition to
state insurance regulatory matters.
ALEC. American Legislative Exchange Council [http://www.alec.org]. ALEC is
a Washington, DC-based organization of conservative state legislators which advocates
limited government, free markets, federalism, and individual liberty.
NGA. National Governors Association [http://www.nga.org]. NGA has resisted
pressures for the federal government to play a larger role in the regulation of health
insurance and can be expected to unite with its allies the Council of State Governments,
the National Association of Counties, the National League of Cities, the U.S. Conference
of Mayors, and the International City/County Management Association, in opposing
federal chartering.
6 For additional information on these initiatives see U.S. General Accounting Office, Regulatory
Initiatives of the National Association of Insurance Commissioners, GAO Correspondence 01-
885R, July 6, 2001.

---