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Insurers are up to their knees in federal regulation, even without an optional charter.

Generations of parents have cited this warning to their children: Be careful what you ask for, you may get it! That thought sprang to mind as I considered the decades-old debate over an optional federal charter.

Many in the insurance industry have long wanted the option of a federal, in lieu of a state, regulator. But now that federal involvement in insurance regulation (not optional) is closer than ever, the industry may have just cause for trepidation.

The hodgepodge of state regulation could well be replaced by an alphabet soup- FRB, FSOC, FIO, SEC, FDIC, OCC-of multiple overseers and compliance standards. Insurers owning thrifts, for example, soon will find their supervision shifted from the Office of Thrift Supervision to three other agencies, with stricter capital requirements and little effective time left to prepare for the new reporting requirements.

Buyer’s remorse is understandable if what is happening on the Financial Stability Oversight Council is a guide to the future. Two of the three FSOC insurance industry members have not been named, including the presidential representative and sole voting member, and the director of the Federal Insurance Office. Yet, FSOC already has proposed the criteria it will apply in considering whether to designate non-bank financial companies as systemically important under Dodd-Frank.

This sparked bipartisan unity when four members of the House Financial Services Committee wrote President Obama, demanding the insurance-related seats be filled without delay since “FSOC is currently at work developing rules, procedures and policies that will have long-term effects” on the insurance sector.

The NAIC complained that Treasury was blocking its representative, the only insurance industry specialist on the panel, from using the resources necessary to properly do his job. Major trade groups- ACLI, PCI, AIA and RAA- sent a joint letter to Treasury Secretary Tim Geithner, asking that decisions affecting insurers with regard to the proposed rule be deferred until the two insurance members are seated. No one knows when that will be, since at press time, no director had yet been named for the FIO.

On July 2 1 , OTS cedes power to the OCC to regulate federal thrifts, and the FDIC will have supervisory, though not rulemaking authority, over state thrifts. The cost of compliance with new rules already in place may be high. Currently, for example, reporting for insurers owning thrifts is largely done on a business-unit basis. Going forward, information will be aggregated on a global basis, in a consistent format and in accordance with regulatory standards (e.g. risk weightings). Staffing may need adjusting to reflect the increased reporting needs and the specialized knowledge now required to meet those needs.

New technology may be necessary. A regulatory reporting technology solution will need to be implemented and interfaced with existing information systems.

So, a look at federal regulation shows the industry is either being overlooked, told to wait, or facing additional regulatory burdens on a short timeline. The one thing there isn’t is an optional federal charter.

Current federal regulation may not be what the industry asked for.

It is, however, what we haveand we need to be prepared.

Listen to an interview with Howard Mills at www.bestreview. com/audio. Digital readers: Hold cursor over icon for content.

The cost of compliance with new rules already in place may be high.

Best’s Review columnist Howard Mills is chief adviser for the Insurance Industry Group at Deloitte LLP and a former Superintendent of the NY Insurance Department. He may be reached at insight@bestreview.com.