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“Similarly,” the agent group continues, “outdated rules and practices do not serve the goals of regulation in todays financial services marketplace.”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.
Starmount, he says, runs newspaper ads. But one state fined the company $10,000 because the ad violated a unique rule, Sternberg says. That rule says that if a company shows even one rate in an ad, it must show all rates, he says, which would have meant 188 rates.
“We obviously no longer run ads in that state, but such foolishness is solely political protection for entrenched marketers, who oppose competition,” Sternberg says.
He says Starmount has insurance products that have been filed for 2.5 years, but are still not approved in every state.
“The excessive delay is expensive and frustrating,” he says. “In the end, the consumer has less choice.”
The present system, Sternberg says, will always handicap Starmounts efficiency. “We are forced to charge the consumer more, as well as to fall short of our sales potential, because of unnecessary and inconsistent regulations,” he said.
Finally, NAIFA is urging Congress to carefully consider the implications of a delicate issue–the collateral source rule–that emerged in the aftermath of the Sept. 11 terrorist attack.
The legislation providing compensation to the families of the victims of the attack contains a provision calling for the compensation to be reduced by any amounts received from a collateral source, such as life insurance or pension benefits.
Now, NAIFA notes in a letter to Capitol Hill leaders, a similar provision appears in H.R. 3375, a bill intended to provide compensation to the families of victims of the embassy bombings in Kenya and Tanzania.
NAIFA says this collateral source provision amounts to picking winners and losers in the midst of terrible suffering.
“Victims of the Sept. 11th attacks and their families should not have been penalized because they had the foresight to purchase financial protection against injury and death,” NAIFA says. “Rather than punish working Americans who prudently purchased life insurance to protect their families, good public policy dictates that individual initiative be rewarded.”
Now that the collateral source provision also appears in H.R. 3375, NAIFA says, some may draw the conclusion that the federal government will guarantee compensation to victims after any national tragedy.
If so, NAIFA says, individuals will be discouraged from taking responsibility for their own financial security.
Individuals who had the prudence to obtain life insurance, annuity or pension benefits should not be treated unfairly, NAIFA says.
Reproduced from National Underwriter Life & Health/Financial Services Edition, June 24, 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.