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Life Health > Life Insurance > Term Insurance

Insurers, Consumer Groups React To Compact Draft

By Jim Connolly

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NU Online News Service, May 23, 5:15 p.m. – Insurers and consumer groups are starting to react to the first draft of an interstate compact that could create a single point of filing for insurance products.

The regulators at the National Association of Insurance Commissioners, Kansas City, Mo., who developed the draft are hoping the NAIC will adopt the draft in September and present it to state legislatures in January 2003.

The American Council of Life Insurers, Washington, expressed support but urged that regulators add long-term care insurance.

NAIC officials said earlier this week that they left long-term care insurance out because of the fact that long-term care insurance is still delivered in different ways in different states.

But, if the compact does not include long-term care insurance, and the states adopt the compact verbatim, the legislatures would eventually have to amend the compact to include long-term care insurance, according to Patricia Parachini, the ACLI’s senior director-state relations.

Long-term care insurance is important as a financial planning tool, and it is close in nature to disability insurance, the ACLI says in a written comment submitted to the NAIC.

The ACLI says the compact draft raises questions about the treatment of life insurance and annuity products that provide accelerated benefits to pay for long-term care, the ACLI says.

The ACLI also wants the compact to give insurers the option of filing product forms through individual states or through the compact.

Additionally, Parachini recommended that the NAIC develop standards before 12 states, the number needed to make the compact operational, sign on. Waiting until there are 12 states, “puts us out a long time,” she says.

Bob Hunter, a consumer advocate representing the Consumer Federation of America, Washington, asked regulators why they think the product filing compact will hold together when other compacts haven’t worked.

Hunter’s question “goes to the heart of the political challenge of getting this done in the states,” says NAIC President Terri Vaughan.

Although the NAIC has not yet polled the states, states showed strong support for developing a compact draft at the NAIC’s spring meeting, Vaughan notes.

Birny Birnbaum, executive director with the Center for Economic Justice, Austin, Texas, says compact standards need to be examined to ensure that they adequately protect consumers.

Birnbaum also stresses the importance of establishing an interstate consumer advocate, because the new, centralized system would replace existing state filing processes. Failure to include an interstate consumer advocate provision would be a deal breaker for consumer advocates, he says.

Birnbaum adds that the NAIC will have to include protections to prevent creating a “revolving door.” Otherwise, he says, members of the compact’s commission or managing committee will take jobs in the industry or go to work for consumer organizations.

The point was also raised that creating the compact might require congressional action. Previously, NAIC officials said they believed no congressional action would be needed.

Some now say congressional action might be necessary to ensure that any disputes between compact states end up in a federal court, rather in a state court in one of the states involved in the dispute.

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