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The National Association of Insurance Commissioners publicly rolled out an interstate compact draft for product filing that it says will remove the need for insurers to seek an optional federal charter.

Some insurers are exploring an optional federal charter option because of the expense and competitive disadvantage of filing in individual states compared with requirements for banks and mutual funds, says Terri Vaughan, Iowa commissioner and NAIC president. If the compact addresses these issues, then it will take a reason for pursuing a federal charter off the table, she adds.

Vaughan says that she does not believe that Congressional approval will be needed to advance the compact since the McCarran Ferguson Act delegates insurance authority to states.

At press time, feedback from insurers was scheduled for May 23 and again during the summer NAIC meeting next month.

“Interstate compacts are not particularly well understood in insurance circles,” according to Vaughan. The NAIC has used the compact structure for its Interstate Receivership compact, a compact with three participating states.

But legislatures are seeing compacts used with greater frequency, she adds. For instance, she cites a sales tax compact that has 30 participating states. “The timing is absolutely right,” she says. However, Vaughan also notes that it takes a couple of years to bring states on board to a compact.

The issue will also be discussed in June during a meeting of the National Conference of State Legislatures, Denver.

NAIC has sought the input of both the National Conference of Insurance Legislators, Albany, N.Y. and the NCSL.

Two weeks ago, representatives from the three organizations met.

The meeting included Vaughan; State Senator William Larkin, R-N.Y., NCOIL president; and State Senator Stephen Saland, R-N.Y., NCSL president. Others present included New York Superintendent Greg Serio; NAIC Vice President and Arkansas Commissioner Mike Pickens; NAIC Secretary Treasurer and Illinois Director Nat Shapo; and North Dakota Commissioner Jim Poolman.

Sen. Larkin is confident about the compact’s prospects. “I think we can do it.” The benefits include advancing speed-to-market and producer licensing needs, Larkin notes. “The idea of a compact has been tried before and is a benefit to consumers,” he adds.

However, he concedes, “It will not be an easy sell because we are talking about giving up turf.”

“There was no disagreement. It was very positive,” according to Robert Mackin, NCOIL executive director.

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

It 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 explains.

A September time frame for adoption by the NAIC and a January 2003 introduction to state legislatures is possible, she adds.

Long-term care is not included in the list of initial products, according to Vaughan, because the product is currently delivered in different ways in different states. However, she continues, “in general, we feel that eventually it will make sense [to include the product as one category covered by the compact.]“

Once a compact is adopted, it would be necessary to go back to legislatures if LTCI or other products, such as property-casualty products were to be added to the system, she says.

The Coordinated Advertising Rate and Form Review Authority will continue until the Interstate Compact becomes operational, according to Frank Fitzgerald, commissioner of the Michigan Office of Financial Services.

It would begin to review product filings after 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, he adds. It could be formed with two states and would be considered operational when 12 states were part of the compact, Fitzgerald explains.

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 senior legislative director. “This is one way uniformity can be achieved if we get all the states on board,” she adds.

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


Reproduced from National Underwriter Life & Health/Financial Services Edition, May 27 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.