Legislators Have Their Say About Adopting An Interstate Compact
Insurance commissioners brought their interstate compact road show here, citing the need to quickly establish a framework for a single point of product filing.
Despite formidable issues such as diminished authority for state legislators and how much oversight authority larger states should have, legislators and regulators see an even more formidable reason for implementing a compact: the specter of federal oversight.
National Association of Insurance Commissioners President Terri Vaughan cited the threat of federal regulation in a press briefing that followed a public hearing during the summer meeting of the organization. She said there was a need to build a system or risk ending up with an entirely different system.
Vaughan added that although the issue of granting larger states more authority on the proposed compacts management committee is the “subject of some discussion,” most states would agree that “some recognition of big states is appropriate and state participation is important to get the process moving.”
“This is a way of leveraging resources and raising the bar for consumers,” said Jose Montemayor, Texas insurance commissioner.
Vaughan said there are still points that need to be worked out, such as the role of consumer representatives and legislative involvement in the compacts governance structure.
But she said there are other points that have been determined, namely:
- Inclusion of long term care insurance under the compact;
- Targeting life insurance products rather than a wide product array that would include property-casualty products; and
- The possibility of attaining a critical mass of participating states after two years.
The timetable the NAIC has established is to adopt the compact during the fall NAIC meeting and present it at state houses starting next January.
Vaughan said the support of the National Conference of Insurance Legislators, Albany, N.Y., and the National Conference of State Legislatures, Denver, is essential.
Robert Mackin, NCOIL executive director, said, “Our people understand the seriousness of the federal threat.” He added that if a compact is successful, it could take 3-4 years to get it up and running, while a federal option could take 5-10 years.
NCOIL is supportive of the compact as it now stands, but Mackin said that LTC is a developing product and should not be included in the compact at this time. “At this stage it is better to leave it out,” citing the need for consensus builders.
The American Council of Life Insurers, Washington, supports inclusion of LTCI in the compact. But Bonnie Burns, an NAIC funded consumer representative with California Health Advocates, Scotch Valley, Calif., said “the product is evolving and there is no sense of what it will look like 10 years from now.”
Of the compact in general, Burns expressed concern that there was no consumer representation and said “it was another entity much farther down the line from consumers and taxpayers.”
Vaughan said, however, that if a state did not want to participate in a product line, the compact has a mechanism that allows for it.
“Legislators on the task force are receptive to the idea of a compact but there are many issues to settle,” said Cheye Calvo, NCSL program manager-employment and insurance program.
Among the issues Calvo said need to be examined further are how legislatures would participate in governance of the compact. One possibility, he continued, would be for a state to have three representatives: two state legislators and an appointee from the state executive branch that could be an insurance commissioner.
The compact was discussed by the NCSL in a task force meeting it sponsored here just prior to the NAIC meeting. Legislators had some pointed questions for insurance commissioners and life insurers.
They asked about the practical viability of the compact and wanted to know how committed life insurers were to state-based regulation rather than an optional federal charter approach. They expressed skepticism over the likelihood that state revenue from premium taxes would not be impacted by an optional federal system.
William Larkin, R-N.Y., said a compact provision that includes the six largest states with 40% of premium volume on a management body of 12 states could cause “infighting” because other states would misunderstand it to mean that “the six large states count and the rest of you follow. It needs more flexibility.”
Long term care was the focus of another question from Rep. Frank Wald, R-N.D. He wondered whether, if the compact commission approves a LTC product, “we have to like it hook, line and sinker or reject the whole ball of wax?”
Vaughan responded that that would be the case, explaining that it is necessary to get away from deviations. “If we head down that road, our feeling is that we will have the same problem that we have today and we wont get to national standards.”
In an interview with National Underwriter, Wald said that if the commission had power over local North Dakota measures, he could not support it. Two ideologies are clashing here, he said: one is keeping certain local “nuances” in place and the other is encouraging streamlining so products can be brought to market for consumers.
When asked about funding the compact commission, Vaughan said it might need an initial loan from the NAIC.
Legislators pointedly asked insurers the degree of their support for state regulation. “Will you support it by backing off the federal charter option?” asked Rep. Kathleen Keenan, D-Vt.
Patricia Parachini, senior director, state relations, responded that the ACLI was committed to continuing to explore both a state and optional federal charter approach. State Senator Kemp Hannon, R-N.Y., responded, “I cant tell you that it will meet with a great reception from state legislators.”
North Dakotas Wald noted, “Premium tax is a sizeable chunk of the state budget. I dont want to see that go away.”
Responding to assertions that the ACLIs optional federal charter would not redirect premium tax revenue from the states, Larkin of N.Y. added, it would represent a loss of $925 million in New York and probably over $1 billion in Texas. “I would like to see something in writing saying thou shalt be done.”
But legislators and North Dakota Insurance Commissioner Jim Poolman said if multi-billion dollar totals are involved, the federal government is going to want at least a portion of that to cover the expense of administering an optional federal system.
Reproduced from National Underwriter Life & Health/Financial Services Edition, June 17, 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.