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GAO Says The Success Of NAIC's Regulatory Reform Efforts Is 'Uncertain'

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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 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.

GAO notes that NAIC reviewed a draft of the report and responded that it generally concurs with GAOs results and conclusions.

Meanwhile, on the health front, insurers and employers are strongly opposing a mental health parity bill approved recently by a Senate committee.

The legislation, S. 543, was approved by the Senate Health, Education, Labor and Pensions Committee by a 22-0 vote and is intended as an extension of the 1996 Mental Health Parity Act.

The 1996 act is set to expire on Sept. 30.

The 1996 act bars group health plans that offer certain types of mental health benefits from imposing stricter limits on those benefits than applied to medical or surgical benefits.

However, Neil Trautwein, director of employment policy for the National Association of Manufacturers, Washington, says that rather than being a mere extension, S. 543 represents a major expansion of the 1996 act.

Trautwein says that while the 1996 act was limited to coverage of biologically based disorders, S. 543 covers the entire Diagnostic and Statistical Manual of Mental Disorders, thus greatly expanding the scope of coverage.

In addition, he says, it eliminates certain protections from cost increases contained in the 1996 act.

This legislation, Trautwein says, will either increase costs to employers or force them to make benefit reductions.

Joseph Luchok, a spokesman for the Health Insurance Association of America, Washington, says S. 543 will increase costs.

Most health plans, Luchok says, already provide some type of mental health coverage. However, he says, mental health is extremely difficult to define.

This type of mandate, he says, will make things even more complicated and costly.

But Sen. Pete Domenici, R.N.M., the primary sponsor of S. 543, notes that the Congressional Budget Office estimates the legislation will increase health insurance premiums by only 1%.

This is negligible, he says, compared with the $148 billion in direct and indirect costs of mental illness in the U.S.

More importantly, Domenici says, mental illness is devastating for individuals and families.

“That is why it is time for a change and this bill will help pave the way,” Domenici says. “The bipartisan support of this bill shows clearly that mental illness does not discriminate by political party, nor by age, gender, race or class.”

Reproduced from National Underwriter Life & Health/Financial Services Edition, August 20, 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.

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