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ACLI Endorses Federal Chartering

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As expected, the American Council of Life Insurers decided to formally pursue optional federal chartering of life insurance companies.

The board voted to formally endorse optional federal chartering at its annual meeting in Boston, after more than a year of study.

ACLI, based in Washington, has termed regulatory reform a “survival issue” for life insurers.

“Regulatory reform and modernization is crucial to the continued success and competitiveness of life insurers,” says Joe Gasper, president and COO of Nationwide Financial Services, Inc., Columbus, Ohio.

“In todays rapidly evolving financial services marketplace, life insurers no longer compete only with one another,” Gasper says, “but with banks and securities firms as well.”

Gasper says that banks and securities firms, due to more streamlined and centralized regulatory systems, can bring products to the national marketplace usually within 30 to 90 days.

This contrasts the six to 18 months for life insurers, he says.

“Failure to reform insurance regulation would pose a competitive burden that may threaten the viability of the life insurance industry,” Gasper says.

Gasper is ACLIs incoming board chairman.

ACLI adds that it will continue to devote all resources necessary to achieve regulatory reform at the state level.

David Winston, vice president of government affairs for the National Association of Insurance and Financial Advisors, Falls Church, Va., says that NAIFA agrees with ACLIs efforts to reform state regulation.

However, he says, NAIFAs policy does not allow it to support optional federal chartering.

Rather, Winston says, NAIFA is exploring ways to achieve national treatment of insurance companies and agents, which might involve federal legislation.

This could include federal minimum standards or an approach such as the National Association of Registered Agents and Brokers, he says.

(NARAB was part of the Gramm-Leach-Bliley Act and called for creation of a federal clearinghouse to streamline agent and broker licensing unless a sufficient number of states enact licensing reciprocity laws.)

Winston says that NAIFA does not necessarily support these ideas. Rather, he says, NAIFA is simply exploring them as a way to provide incentives for states to achieve uniformity and efficiency in insurance regulation.

ACLI formally began exploring optional federal chartering in June of 2000. About one year later, ACLI released a draft proposal on the issue, but did not formally endorse it until today.

The ACLI proposal would create an Office of National Insurers (ONI) at the Treasury Department, headed by a director who would be appointed by the President and confirmed by the Senate.

The director would be appointed for a five-year term.

ONI would have authority to conduct regular financial examinations of federally-chartered insurers and prescribe all necessary regulations.

The ACLI proposal would require federally-chartered insurers to meet specified requirements regarding accounting principles, investments, asset valuation, risk-based capital and auditing standards.

Federally-chartered insurers would still be subject to all state taxes that apply to state-chartered companies.

The ACLI proposal does not establish a federal guaranty fund. Rather, in order to acquire a federal license, insurers would have to be a member of a “qualified” state guaranty association in each state in which the insurer does business.

A “qualified” association is one that provides coverage and benefits similar to those under the Life and Health Guaranty Association Model Act developed by the National Association of Insurance Commissioners.

However, a backup mechanism called the National Insurance Guaranty Corp. would be established to cover insurers that do business in states that do not have qualified associations.

The ACLI proposal also calls for federal licensing of insurance agents. Indeed, insurance agents would be required to obtain a federal license in order to sell insurance for a federally-chartered insurer.

The ACLI proposal only covers life insurers at the outset. However, health insurance would be included as a regulated line for federally-chartered life insurers on the third anniversary of the effective date of the proposal.

ACLI says it expects Congress to hold hearings on federal chartering of life insurers in the spring of next year.

In other news, Sen. Jeff Bingaman, D-N.M., has introduced legislation, S 1677, that would ease some of the restrictions on providing investment advice to pension plan participants.

However, unlike a similar bill in the House, the Bingaman bill is opposed by NAIFA.

Winston says that the Bingaman bill bars those who are state-licensed, such as insurance agents, from becoming qualified investment advisors.

This contrasts with the House bill, H.R. 2269, which allows state-licensed insurance agents to provide investment advice subject to strict disclosure standards, Winston says.

Bingaman says his legislation is supported by the Financial Planning Association and the American Association of Retired Persons.

Reproduced from National Underwriter Life & Health/Financial Services Edition, November 19, 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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