Playing to win in the influence game

Not many financial companies saw an opportunity in the economic meltdown. But large insurers did, and now they’re using it to lobby for a lucrative change they’ve sought unsuccessfully for years.

Industry estimates suggest a rather obscure change in federal law could be worth billions of dollars annually to insurers. Key lawmakers and Obama administration officials say they’re open to it, and industry lobbyists see the drive to overhaul financial rules in the wake of the meltdown as their best chance in a long time to achieve it.

The change would give insurance companies the option of escaping state regulators by setting up a new federal agency and letting them choose whose rules to obey — a proposal consumer advocates view with horror.

If the companies get their way, the financial crackdown that President Barack Obama and Congress have promised as a way to prevent another Wall Street crisis will come with a substantial easing up on insurance companies. Known as an "optional federal charter," the system would free large insurers, which now can be subject to as many as 51 different sets of rules and overseers in the states where they operate, from a regulatory web they say stifles their business and leaves the federal government blind to potential industrywide problems.

It would function much like the system now used to regulate banks, allowing insurance companies to decide whether to be chartered and overseen by the federal government or by individual states.

Major insurers, including Allstate, State Farm and Zurich, plus the big financial trade associations argue that the change would create a much-needed federal overseer for a gargantuan sector that currently has no national authority looking over its shoulder.

Debate on sweeping new financial laws has "created an opportunity," said Leigh Ann Pusey, top lobbyist at the American Insurance Association, which represents large property and casualty insurers. "You can’t really look at these concepts and ideas that are out there without looking at having a federal regulator for the insurance industry."

Consumer advocates argue that such a system would let insurance companies shop around for the weakest rules and lead to the same kinds of abuses and reckless risk-taking that brought other financial services firms to their knees.

Doug Heller of California-based Consumer Watchdog said it would be "impossible" for the federal government to properly regulate the industry, adding, "The idea that they would contemplate giving big financial corporations a choice of who regulates them after we saw how that worked for the banks is just legislative insanity."

Far from strengthening oversight, consumer advocates call it a push for deregulation that would harm consumers and fly in the face of Obama’s promise not to let financial companies "cherry pick" regulators in a bid to escape tough rules.

"It’ll be a question of who can impress the insurance companies the most with their regulations, and that means, ‘Who will let us do whatever we want without regard to what protects consumers?’" Heller said. "You will have the federal government and state regulators in a race to the regulatory bottom."

Public scrutiny of failed insurance giant American International Group Inc. has helped create momentum for the idea of national rules for the industry. That’s despite the fact that the company’s troubles were mostly caused by the AIG’s exotic investments rather than its insurance practices.

"This environment allows the best chance yet to deal with this issue," said Brian Conklin, top lobbyist for USAA, which insures military personnel. He said the current state-by-state patchwork creates yet "another hindrance" for USAA’s customers, many of whom are forced to move each year and often can’t take their insurance with them.

Together with their trade groups, the companies have dumped tens of millions of dollars into lobbying for the change in recent months.

They’ve also given freely to politicians in positions to help them achieve it. Obama is among the top recipients of insurance industry campaign money, taking in $2.2 million in the run-up to the last election, according to the campaign finance watchdog Center for Responsive Politics. Other top recipients include Rep. Paul Kanjorski, D-Pa., who chairs the House subcommittee that handles insurance, and Rep. Melissa Bean, D-Ill., who’s pushing legislation to accomplish the switch.

The idea is not without controversy inside the insurance industry, where smaller players that long have been rivals of their larger brethren fear their business would be hurt and their very existence threatened by a new set of federal rules.

"You could create a very unlevel playing field," said Jimi Grande of the National Association of Mutual Insurance Companies.

The National Association of Insurance Commissioners, which now holds a monopoly on insurance regulation, has lobbied intensely against the change.

"What we have now is duplication, overlap, multiple eyes on a problem and checks and balances, so when one regulator makes a mistake, there’s another one waiting in the wings to correct it," said Therese M. Vaughan, NAIC’s president. "If you want to add another layer of eyes, that’s fine with us. Just don’t take our eyes off."

Insiders acknowledge that the switch could be a tough political sell at a time when the public is skeptical of financial firms, and lawmakers could be reluctant to give any company a choice of regulators. Some top lobbyists at work on the issue say the measure could be put off until later, or restricted to certain products such as life insurance, which functions more like a financial product.

Still, the idea has sparked some high-profile interest. Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke both have said they are open to it.

Bean is a confidante of Rep. Barney Frank, D-Mass., the House Financial Services Committee chairman who has a lead role in drafting the financial overhaul.

During a hearing last month, Frank said the issue is "very much on the agenda" of his panel.