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NCSL To Consider Product Filing Compact

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NU Online News Service, July 17, 7:35 p.m. – Members of the National Conference of State Legislators will discuss an updated version of the proposed interstate life insurance product filing compact next week in Denver, at the NCSL’s annual conference.

The compact would create a single, multistate system that insurers could use to file for regulatory approval of life insurance products.

State lawmakers and state insurance regulators are developing the compact to ward off expansion of federal regulation of the insurance industry. Some large companies and industry groups want to create a “federal chartering” system that would give insurers a choice between state regulation and federal regulation.

The National Association of Insurance Commissioners, Kansas City, Mo., is supposed to release a new compact draft Friday that will incorporate work by members of the NAIC, the NCSL and the National Conference of Insurance Legislators, Albany, N.Y.

NCSL officials are expecting the NCSL to discuss the Friday draft.

Draft discussion participants say one controversy concerns the membership of the management committee that would oversee the compact.

Big states are arguing that they should have more representation because they collect more of the insurance premium revenue. Smaller states argue that they also need to have influence over the compact.

A “big state” plan and a plan proposed by Ohio Insurance Director Lee Covington seem to be getting the most attention from legislators.

The big-state plan would provide for representation by the six states that generates the most premium revenue. The management committee would also include four representatives from regional zones and two elected at-large members.

The other proposal would create a 14-member management committee. California, Florida, Illinois, New York, Pennsylvania and Texas, which each account for at least 4.5% of U.S. premium revenue, would all have representatives on the committee. The committee would also include representatives from four states that each account for between 2% and 4.5% of the market, and four representatives from states that each account for less than 2% of the market.

The six largest states represent 40% of premium volume; midsize states, 31%; and small states, 29%.

States that generate most of the premium tax revenue will want a vote, and “I think that they should have it,” says NCOIL President William Larkin, who serves in the New York Senate.

When a state has a representative on the compact managing committee, the governor of the state should decide on whether the representative is the insurance commissioner or another official, Larkin adds.

North Dakota Insurance Commissioner Jim Poolman says that although he still sees a push and pull over management committee representation, he believes there is room for compromise, in part because of states’ desire to hang on to state premium tax revenue.

If the federal government takes over insurance regulation, states may have to find a way to replace that revenue source, Poolman says.

The timeline for getting a final compact proposal out to the states is aggressive but achievable, Poolman adds.

The NAIC wants to address the compact issue by January 2003. That would mean that many states would have to put the compact issue on the legislative agenda this fall, Poolman says.

Texas state Rep. David Counts, D-Knox City, Texas, a past NCOIL president and a current NCSL representative, says states need to be willing to compromise if they want to keep the ability to regulate insurance.

The alternative is to “fork over everything to a federal charter,” Counts says. “A federal charter is a very wrong direction to go.”

New York state Sen. Kemp Hannon, R-Nassau, N.Y., says he worries about the “very real, ongoing encroachment of the federal government.”

He adds that the concept of a dual charter might sound seductive, but that it could lead to preemption of state laws that are important to consumers. In New York, federal banking authorities have preempted a number state banking laws, Hannon reports.

Interviews suggest that regulators and lawmakers are still talking about whether to include LTC insurance product filings in the compact.

Proponents, including the American Council of Life Insurers, Washington, say that going back to legislatures later to add LTC insurance to the compact would be difficult.

Critics say that LTC insurance is still evolving, and that many states will want to postpone putting the product under the authority of the compact.