Like a mountain peak that seems to recede as you approach it, the prospect of the establishment of an optional federal charter (OFC) to replace a strictly state-based regulatory system for insurance remains in some indefinite future, despite our continued conversation about it. This is not to say that the OFC will never get here, only that we're still some way off from predicting its arrival.

That remains the case despite the proposal of an OFC in Treasury Secretary Henry Paulson's preliminary blueprint for a streamlined financial services regulatory system headed by the Federal Reserve. However, Paulson's recommendations have certainly brought renewed intensity to the OFC debate, and they have probably made OFC more likely to happen by popularizing the notion of unified federal oversight for financial services—and that would probably have been the case if no specific recommendation for OFC had been made.

Reactions to Paulson's recommendation for an OFC were predictable: the American Council of Life Insurers (ACLI) applauded what it characterized as a more efficient and modern framework; the Property Casualty Insurer Association of America (PCI) agreed about a need to streamline and modernize, but not at the expense of a state-based system that accounts for real differences from state to state and region to region. Both associations make valid points, so one wonders whether they might both be accommodated.

That is what the "optional" part of OFC pretends to do, but in a market where OFC prevails, larger companies will have an advantage at the expense of small regional players.

As the federal government steamroller gears up, organizations such as PCI and the Independent Insurance Agents & Brokers of America will need to win converts to their argument that state regulation has and will continue to serve consumers interests better, not just their own.

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