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NAIC Says Compact Answers Insurer Concerns

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NU Online News Service, May 21, 12:43 p.m. – The National Association of Insurance Commissioners, Kansas City, Mo., has publicly rolled out a draft for an interstate product filing compact that it says will remove the need for insurers to seek an optional federal charter.

Some insurers are studying development of an optional federal charter program because of the expense and delays involved with filing in individual states. Banks and mutual funds face no such state-by-state filing requirements, says NAIC President Terri Vaughan, the Iowa commissioner.

If the compact addresses insurers’ concerns about the expense and the delays, it will take a reason for pursuing a federal charter off the table, Vaughan says.

Vaughan adds that she does not believe that congressional approval will be needed to advance the compact, because the McCarran Ferguson Act delegates insurance authority to the states.

The May 14 compact draft includes life insurance, fixed and variable annuities and disability income products.

The draft calls for the creation of a commission in which each state would have one representative and one vote and a managing body of 12 states with representatives from the six largest states, according to Vaughan.

States could withdraw from the compact and choose whether or not to participate in a line of business, she explained.

Long-term care insurance is not included in the initial product list because LTC insurance is currently delivered in different ways in different states, Vaughan says.

But, “in general, we feel that eventually it will make sense” to include LTC insurance, Vaughan says.

The NAIC will hear feedback from insurers Thursday, and again next month during the NAIC summer meeting.

NAIC has sought the input of both the National Conference of Insurance Legislators, Albany, N.Y. and the National Conference of State Legislatures, Denver. NCOIL has expressed initial support for the document.

The issue will also be discussed in June during an NCSL meeting.

The NAIC could adopt the compact as early as September, and it’s possible that the compact could be introduced to state legislatures in January 2003, Vaughan says.

“The timing is absolutely right” for an insurance compact, Vaughan says.

Although the NAIC has used the compact structure for its Interstate Receivership compact, a compact with three participating states, for the most part, “interstate compacts are not particularly well understood in insurance circles,” Vaughan says.

Getting states to join a compact can take a couple of years, Vaughan adds.

But Vaughan says legislatures are seeing compacts used with greater frequency. One example is a sales tax compact that includes 30 states.

Frank Fitzgerald, commissioner of the Michigan Office of Financial Services, says an existing program, the Coordinated Advertising Rate and Form Review Authority, will continue to operate until the Interstate Compact becomes operational.

The Interstate Compact could be formed with two states and would be considered operational when 12 states were part of the compact, Fitzgerald says.

The compact would begin to review product filings once 26 states had become part of the compact, or states representing a total of 50% or more of life and annuity premium volume were represented by the compact, Fitzgerald says.

The American Council of Life Insurers, Washington, is pleased with the compact’s goal of making a major change, rather than moderate form filing changes, says Patricia Parachini, ACLI’s senior legislative director. “This is one way uniformity can be achieved, if we get all the states on board,” Parachini says.

Parachini declined to say whether successful implementation of the compact would eliminate one of the reasons for pursuing an optional federal charter. She says ACLI has just seen the draft and needs to canvass member companies before it has a better reading on company reactions.


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