WASHINGTON—The head of W.R. Berkley Insurance Co. testifying at a Senate hearing on the future of insurance regulation voiced support for creation of a “independent” federal insurance regulator as the best means of regulating property-casualty insurance.

But representatives of smaller insurers, state regulators and independent agents challenged that view, asking that legislators “act prudently and responsibly” before revising current state-based regulatory systems to account for the current economic crisis.

The groups made their remarks in testimony before the Senate Banking Committee on “Perspectives on Modernizing Insurance Regulation.”

William Berkley, chief executive officer of W.R. Berkley Corporation, said that given the national and global nature of risk assumed by property and casualty insurers, “establishment of an independent federal insurance regulator is the only effective way of including property-casualty insurance” in a new regulatory system for insurers.

Mr. Berkley also spoke as chairman of the American Insurance Association.

In his comments, Mr. Berkley said that p-c insurance “is critical to our economy,” and does not “pose the same types of systemic risk challenges as most other financial services sectors.”

Nonetheless, he said, because property-casualty insurance is so essential to the functioning of the economy and is especially critical in times of crisis and catastrophe, “functional federal insurance regulation will enhance the industry’s effectiveness and thus should be included as part of any well-constructed federal program to analyze, manage and minimize systemic risk.”

But Michael McRaith, Illinois director of insurance, speaking for the National Association of Insurance Commissioners, countered that if there are federal initiatives, such as for system risk, they should be accomplished through a “state/federal partnership.”

He said state insurance regulators support federal initiatives to identify and manage national and global systemic risk.

But, he said, any such partnership must include a “primary role for states in insurance regulation,” with a systemic regulator like the Federal Reserve “integrating but not displacing” state-based regulation of insurance.

“Consumer access to state-based, local regulatory officials will remain the bulwark of consumer protection,” he added.

In his testimony, John T. Hill, president and chief operating officer of the New York-based Magna Carta Companies and chairman-elect of the National Association of Mutual Insurance Companies’ board of directors, acknowledge that “The current crisis demands that Congress act.”

But it “must act prudently and responsibly, focusing limited resources on the most critical issues,” Hill testified. “We encourage Congress to adopt a measured approach to the problems at hand and avoid the inclination to rush to wholesale reform.”

Spencer M. Houldin, an independent agent from Connecticut, and chairman of the government affairs committee of the Independent Insurance Agents and Brokers of America, agreed.

Mr. Houldin called for careful and judicious examination of the causes of the current crisis, and a determination of “how or if regulatory policy should change to ensure we do not repeat the mistakes of the past.”

He added that while the IIABA is committed to helping improve the system, it is worth noting that relative to other segments of the financial services industry, “the property-casualty insurance market has remained solid and vibrant.”

Specifically, he said, “… the property-casualty insurance industry continues to operate without the need for the federal government to step in to provide any type of support.”

“IIABA believes that, with the exception of a properly crafted systemic risk overseer at the federal level, targeted modernization is the prudent course of action for reform of insurance regulation,” Mr. Houldin said.

“Therefore, any efforts to use this crisis and the failure of American International Group as an opportunity to promote misguided measures that would allow a regulated insurance entity to choose its own regulator should be summarily dismissed as unacceptable in today’s financial environment.”

Prior to today’s hearing the National Conference of Insurance Legislators sent a letter to the committee reinforcing its strong opposition to insurance optional federal charter proposals.

NAIC wrote that, “If the ongoing financial crisis has taught us anything, it is that state-based insurance regulation continues to safeguard American consumers and the insurance industry.

“State insurance regulation was not a factor in the economic downturn and should not be wrapped into any proposed financial services overhaul.” 

Copyright © 2009 by National Underwriter Property & Casualty Magazine.