Getting More Efficient Regulation Now A ‘Survival Issue’ For ACLI
Improving the efficiency of life insurance regulation is now viewed as a “survival issue” by life insurers, says a representative of the American Council of Life Insurers.
William B. Fisher, vice president with MassMutual, says non-insurance financial institutions such as banks and mutual funds compete directly with life insurers.
Moreover, he says in testimony before a House of Representatives panel, these firms enjoy regulatory efficiencies that translate into significant marketplace advantages.
The hearing by a House Financial Services Subcommittee focused on the issue of “speed to market” in the current regulatory environment.
The subcommittee is also expected to examine optional federal chartering of insurers and agents in the next few months. This comes on the heels of a hearing on agent licensing just a few weeks ago.
While Congress is not expected to seriously consider federal legislation on insurance regulation for at least two years, these hearings could lay the groundwork for a future effort to create a larger federal role in regulating insurance.
Fisher says the inability of life insurers to bring new products to market in a timely and efficient manner is one of the most serious shortcomings of the current system.
“In the age of the Internet, when consumers expect to be able to consider many sophisticated financial products rapidly, the insurance industry will be left behind by its major competitors as a result of its current regulatory environment,” he says.
Fisher says it can take anywhere from six months to two years to gain approval to sell life insurance products on a nationwide basis.
By contrast, he says, it takes banks only a matter of weeks, and securities firms only three or four months, to obtain approval from their respective regulators.
“We preliminarily estimate that last year alone, we lost at least $50 million in sales, measured by premium, due to the inability to get products to market more quickly,” Fisher says.
He notes that the National Association of Insurance Commissioners, Kansas City, Mo., has launched a pilot project aimed at accelerating the approval process for policy forms, called the Coordinated Advertising, Rate and Form Review Authority (CARFRA).
While this is a good “first step,” he says, there are practical problems.
For one thing, Fisher says, the 10 states participating in CARFRA do not have uniform laws. Companies, he says, must alter their product filings based on the different “deviations.”
Second, he says, CARFRA membership is voluntary. “States may be unwilling or unable to cede sufficient authority to a separate body to approve a product for sale in their respective states.”
While CARFRA is a significant accomplishment for NAIC, he says, establishing national standards and a single review process for all jurisdictions is very challenging, at best.
“Whether the state system of insurance regulation can meet this challenge remains to be seen,” Fisher says.
In written testimony, the National Association of Insurance and Financial Advisors, Falls Church, Va., along with two other agent groups, call for continued efforts to work with NAIC to bring about needed changes.
The agents note that unless the state deviations in CARFRA are eliminated, the number of deviations will increase exponentially as more states and products are added to the program.
This, agents say, will defeat the purpose of the initiative.
To solve the problem of speed to market, the agents say, each state must take steps to eliminate unnecessary requirements, respond to approval requests more quickly, develop uniform standards for filing and review, and establish a more transparent review process.
However, in a separate document, NAIFA contends that an optional federal chartering system is the wrong way to go.
Noting arguments that federal chartering is less costly and more uniform than the current state system, NAIFA says optional federal chartering has a significant downside.
For one thing, NAIFA says, creation of a separate federal regulatory regime will require either a new federal guaranty fund or that the states continue to guarantee the obligations of insurance companies over which they no longer exercise regulatory authority.
Second, NAIFA says, optional federal chartering could produce an unfair and anticompetitive distribution of market advantages based on choice of regulatory system, thus destroying the level playing field on which the industry now competes.
NAIFA adds that the existing regulatory system has resources already in place to handle consumer inquiries and has personnel with specialized experience and skills to regulate insurance.
Moreover, NAIFA says, a remote federal regulator would not be perceived as being as responsive to consumer inquiries or complaints as state regulators.
Finally, NAIFA says, it is important to avoid confusion among consumers.
“A dual regulatory system is complicated and will have a negative impact on consumer access to regulatory protection, especially during the sales process where state regulated agents will be selling products offered by federally chartered insurers,” NAIFA says.
ACLI recently drafted a proposed optional federal chartering system, but has not yet decided whether to endorse the concept.
Reproduced from National Underwriter Life & Health/Financial Services Edition, June 29, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.