Washington, D.C. (February 27, 2008) -- Optional federal chartering of insurance companies would have little or no impact on state economies and any effects are more likely to be positive than negative, says a new study.

Entitled “The Effects of an Optional Federal Charter for Life Insurers on State Economies,” the study found that the increases in competitiveness and efficiency that would be fostered by an optional federal charter (OFC) will likely benefit states by boosting  economic activity and insurance industry-related employment. While the employment changes would vary across states, and some states might experience a decrease, the impact would be relatively small, the study says. 

Commissioned by the American Council of Life Insurers (ACLI), Martin F. Grace and Robert W. Klein of the Center for Risk Management and Insurance Research at Georgia State University conducted the study.

“Many critics of OFC are concerned that it would damage state economies by diverting substantial amounts of revenue that now go to states to the federal government. The Grace-Klein study should reassure everyone that these grim forecasts won’t be realized. If anything, the increase in insurance-related commerce that would naturally follow from a more efficient and competitive industry if OFC is enacted would benefit just about everybody,” said Frank Keating, president and CEO of ACLI.

The study finds that state insurance department revenue from fees and other charges would likely decrease if insurers opt for federal regulation. However, insurance department expenses would also decrease. In terms of tax revenue, the study notes that the OFC legislation pending before Congress preserves the rights of states to collect premium and retaliatory taxes.

“It is important to address one other issue not mentioned in the Grace-Klein study: the suggestion that while OFC legislation preserves state premium taxes, it is only a matter of time before Congress strips states of this important revenue source. As a practical matter, it is difficult to imagine a scenario where it would be politically possible for Congress to inflict such harm on the states. The outcry back home and the potential fallout to individual members of Congress would be too great,” Keating said.

“In fact, national banks have functioned under federal oversight for 100 years and Congress has never tried to prevent states from taxing their income. Whether an income tax or a premium tax, history shows that Congress will not tamper with state revenue-raising measures,” he added.

“Consumer protection, efficiency and competitiveness would all be enhanced under an OFC system. Now that fears of a major decrease in state revenues from an OFC have been debunked, it is time for Congress to move forward on this vital legislation,” Keating said.

To see the full study and the ACLI highlights, click here .

The American Council of Life Insurers (ACLI) is a Washington, D.C.-based trade association whose 353 member companies account for 93 percent of the life insurance industry’s total assets in the United States, 93 percent of life insurance premiums and 94 percent of annuity considerations. In addition to life insurance and annuities, ACLI member companies offer pensions, including 401(k)s, long-term care insurance, disability income insurance and other retirement and financial protection products, as well as reinsurance. ACLI's public Web site can be accessed at www.acli.com.

Contact:  Jack Dolan, (202) 624-2418, jackdolan@acli.com