An array of plans could change who regulates the property insurance industry. WASHINGTON -... Congress Readies To Tackle Insur

WASHINGTON - Now comes the test of whether $177 million in political donations in the last decade has bought the insurance industry enough goodwill to withstand an epic storm.

In the wake of Hurricane Katrina, Congress is considering an array of plans that could bring the embattled property insurance industry under federal rules. State regulation has dominated since the nation's birth.

Lawmakers, state officials and insurance executives are debating a federal role in an economically vital and politically powerful sector now scorned for claim denials and soaring rates along the Gulf of Mexico.

Plans ranging from the creation of a national catastrophe fund to the end of the industry's exemption from federal antitrust law - with many proposals in between - have splintered this multifaceted business.

The hands-off federal policy has been a mixed bag for insurers. It may be canceled amid emotional talk and a flurry of plans for an industry that wants less regulation, not more.

"What we're concerned about is the chaos that comes with trying to reinvent a system that has worked," said Marc Racicot, former governor of Montana and president of the American Insurance Association.

The stakes include how rates are set and to whom policyholders would complain. The debate could decide what rules apply to insurers and who is helped or hurt by federal intervention: the companies, the customers or both.

States such as Florida pushing for a national catastrophe fund make a simple argument about the need for a federal backstop against mega-disasters. That idea, however, comes with potentially complicated consequences and is amplifying broader proposals.

Rep. Ginny Brown-Waite, R-Fla., who wrote a leading bill to create a federal catastrophe fund, said she's a "state's rights person." But she acknowledged a federal fund would come with strings and that "conflicting public policy tugs" raise yellow flags.

The debate is so complex, involving many players who disagree, that it could collapse without much action. Many lawmakers and industry experts, however, say events seem to point to decisions within the next few years that could reshape the industry for a generation.

Sen. Mel Martinez, a Florida Republican, says he supports state oversight but thinks a federal role is coming. Martinez emphasized that insurance companies have grown into global players still subject to more than 50 sets of laws in the United States.

The industry grew from humble origins in fire protection before the American Revolution to a juggernaut entwined in global financial markets. Split over various proposals, the industry's collective clout on Capitol Hill is being tested.

The U.S. Supreme Court gave jurisdiction to the states soon after the Civil War. In 1944, however, the high court ruled a company had violated antitrust law, raising the specter of federal regulation as well. Congress, fearing chaos in a fundamental industry, quickly exempted insurance from the federal antitrust law.

In 1968, Congress created the equivalent of a federal insurance company in the National Flood Insurance Program, after private companies decided floods were too costly. The program was intended to support itself with premiums but now owes the Treasury more than $20 billion because of Katrina claims and discounted rates for thousands of properties. Insurers say the debt should dampen enthusiasm for more intervention.

In 2002, however, Congress made a deal that benefited insurers who refused to cover losses from terrorist attacks after the Sept. 11, 2001 attacks. The government agreed to pay when damage hits huge amounts.

Insurers hold up the foundering flood program as a cautionary tale for regulation of other private markets. Some lawmakers argue the terrorism backstop has stunted the emergence of terrorism policies in the free market.

The debate about property insurance regulation comes as lawmakers discuss whether to renew the terrorism insurance backstop and reform the flood program, adding to general deliberations about federal involvement.

For example, despite the flood insurance program's trouble, some of the angriest industry critics propose to add competing federal wind coverage to it.

Anger after Katrina has sent some powerful lawmakers in directions that make insurance executives nervous. Sen. Patrick Leahy of Vermont, chairman of the Judiciary Committee, and Sen. Arlen Specter of Pennsylvania, the ranking Republican, are pushing to repeal the antitrust exemption that allows companies to share data used to set rates, among other things.

"When I realized that rate setting and actually policy actions by the industry were not covered by antitrust laws," Sen. Trent Lott, R-Miss., a party leader who lost his house to Katrina, said recently, "I was stunned."

The antitrust argument has arisen occasionally over the years, and insurers beat it down. They say the political environment is more heated now.

"I don't think they've ever seen this much activity," said Ben McKay, head of government affairs for the Property Casualty Insurers Association of America.

The industry is not entirely against federal oversight. Big interstate and international insurers have long wanted a federal charter that would let participants opt out of state regulations in exchange for national rules.

Lawmakers are considering such a bill, which small and independent insurers oppose. Industry critics say it would ease regulation rather than simply shift oversight.

"Consumer protection is best served at the lowest level of government," said Walter Bell, the insurance commissioner for Alabama and president of the National Association of Insurance Commissioners, "and in this instance that's the state insurance department."

Rep. Barney Frank of Massachusetts, chairman of the House Financial Services Committee, has tasked two Florida Democrats, Reps. Ron Klein and Tim Mahoney, to write legislation with a federal backstop for disaster insurance. That could be a national catastrophe fund or another type of backstop that would pay after participating insurers or state catastrophe funds dole out their share.

The industry is fractured over catastrophe funds and other proposals. Those programs likely would come with requirements, such as spending on mitigation, which some insurers predict would broaden over time.

Sen. Bill Nelson, a Florida Democrat and former state insurance commissioner, is asking Congress to create a commission to study these issues before jumping into unfamiliar territory.

This is cache, read story here