IIAA Policy Shift Could Put Heat On State Regulators
The policy change by the Independent Insurance Agents of America to support federal legislation to help achieve the goal of state regulatory reform offers the possibility of accelerating the reform process, but needs to be fleshed out.
As it stands, the concept of using so-called “federal tools” to achieve reform, while maintaining full state-based control of the insurance regulatory system, raises more questions than it answers.
Depending on how intrusive the federal legislation will be, the resulting system may only be marginally better than what exists today.
For example, consider the implications of minimum federal standards for state regulation, one of the federal tools IIAA says it may support.
Minimum standards may reduce some of the variations that now exist among state insurance laws and regulations, but unless the legislation mandates uniformity, will it really solve the problem?
One of the major complaints voiced across the board from both insurance companies and agents is that they often have to comply with a multiplicity of different state regulatory requirements, such as for agent and broker licensing, that are not prudential in nature but simply reflect local idiosyncracies.
Complying with these different requirements, the complaint goes, adds unnecessary costs to the regulatory system.
Minimum federal standards may well establish certain parameters every state must follow, but if local variations are allowed, it would defeat one of the main objectives of regulatory reform.
If the goal is to eliminate unnecessary costs and complexity, minimum federal standards may have to be quite strict and inflexible. IIAA needs to supply details of just how preemptive minimum federal standards should be in order to achieve the goal of regulatory reform.
Another possibility IIAA identifies is the use of mechanisms such as a National Association of Registered Agents and Brokers (in the Gramm-Leach-Bliley Act) to create incentives for states to achieve uniformity on their own.
Under GLB, NARAB would come into existence as a clearinghouse to facilitate agent and broker licensing unless a sufficient number of states harmonize their licensing standards.
But again, IIAA needs to identify the extent of authority a NARAB-type facility would have. Recall that when the Council of Insurance Agents and Brokers first developed the NARAB concept for inclusion in the GLB package, it would have preempted one of the most egregious self-interest protectionist measures in the entire field of insurance regulation, state counter-signature laws.
Unfortunately, some powerful figures in the agent community that have a stake in counter-signature laws threatened to oppose NARAB unless the protectionist measures were specifically preserved, which they were.
Again, if a NARAB-type approach is to achieve its purpose, IIAA will have to withstand the intense local opposition it will surely face.
Obviously, a lot of work needs to be done on the idea of using federal tools to achieve reform. However, IIAAs policy change will likely create further pressure for state legislatures and the National Association of Insurance Commissioners to reform the system before Congress gets into the act.
If so, it will be a worthwhile effort.
Reproduced from National Underwriter Life & Health/Financial Services Edition, February 18, 2002. Copyright 2002 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.