NAIFA Reaffirms Support For State Regulation, Despite Its Flaws
While acknowledging that significant weaknesses exist in state insurance regulation today, the National Association of Insurance and Financial Advisors says it remains skeptical that creation of a federal bureaucracy is necessary to achieve reform.
In a statement submitted to a House Financial Services Committee panel examining the issue of optional federal chartering, NAIFA says it continues to believe the states will be more responsive to concerns of financial advisors than a federal regulator could be.
There are certainly major flaws in the current system, NAIFA says. “Unnecessary distinctions among the states and inconsistencies within the states thwart competition, reduce predictability and add unnecessary expenses to the cost of doing business,” NAIFA says.
“Similarly,” the agent group continues, “outdated rules and practices do not serve the goals of regulation in todays financial services marketplace.”
Still, NAIFA says, there is much that is good about the current system that would be lost through the creation of a federal regulator.
In particular, NAIFA cites an enforcement infrastructure upon which consumers throughout the country rely heavily to protect their interests.
Nonetheless, NAIFA says it is currently reviewing different regulatory options and is developing a position on the most workable solution to the problems with the current system.
The most successful solution, NAIFA says, will preserve the best characteristics of the current system. “By working with state insurance departments rather than against them, the insurance industry will be better able to meet the challenges of a rapidly changing financial services environment.”
But the chairman of one small life insurance company, who testified before the House Financial Services Committee panel, says optional federal chartering is necessary since the present system imposes high costs and restricts market access.
Hans J. Sternberg, chairman of Starmount Life, Baton Rouge, La., cites example after example of ways the present system harms small life insurers (Starmount has 63 employees and is admitted in 18 states) and limit choices to consumers.
Sternberg says Starmount once developed a new policy at a cost of about $25,000, which is a lot of money for a company its size.
Although the policy was approved by most of the states where Starmount is admitted, two states did not approve it, he says. After three years, Sternberg says, Starmount had to abandon the program because it was not economical to promote it to only part of its customer base.