The timely completion and degree of success of efforts by the National Association of Insurance Commissioners to achieve regulatory reform remain uncertain, the United States General Accounting Office says.
“Each state will be required to rely on the actions of regulators in other states to a greater degree than ever before,” GAO says in a letter to Rep. John D. Dingell, D-Mich., who requested the GAO study.
“Whether regulators ultimately achieve uniformity in some areas or even attain reciprocity, continuing weakness in some states regulatory framework can undermine the system,” GAO says.
The GAO study (which can be found at www.gao.gov) came in response to queries from Dingell over whether the regulatory reform initiative by the Kansas City, Mo.-based NAIC might negatively affect oversight of insurance company solvency, particularly in light of fraud allegations surrounding financier Martin Frankel.
But in its report, GAO says NAIC and the states have begun several improvements in their efforts to police fraud.
These actions, GAO says, which will be phased in over several years, include improved background checks, investment analysis and asset verification, and better communication and coordination among state insurance departments.
“Collectively, these actions have the potential to improve oversight if NAIC and the states sustain a high-level commitment to implementing them,” GAO says.
As for regulatory modernization, GAO notes that NAIC and the states are working to streamline agent and broker licensing, insurance company licensing and oversight and product approval.
On producer licensing, GAO says NAIC is confident that sufficient states will adopt reciprocal licensing requirements by the deadline of November 2002 in order to forestall creation of the National Association of Registered Agents and Brokers.
Nonetheless, GAO says, challenges remain. One major issue, GAO says, is how to handle differences in state requirements on the nature and extent of background checks.
On company licensing, GAO says, NAIC and the states are working to develop a Uniform Certificate of Authority Application to facilitate the approval process.
As for product approval, GAO says, NAICs Coordinated Advertising, Rate and Form Review Authority is currently being tested.
These and other efforts, GAO says, are being put to the test as pressure builds from both the Gramm-Leach-Bliley Act and competitive forces for more efficient and streamlined insurance regulation.
A major factor affecting the success of these initiatives, GAO says, is the level of confidence state regulators will have in their counterparts willingness and ability to adequately obtain, assess and validate the information needed to make regulatory decisions.
“At present, both the timely completion and degree of success for many of NAICs financial modernization initiatives remain uncertain,” GAO says.