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Regulation and Compliance > State Regulation

Fed Charter Specter Binds State Officials

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The pressure to maintain state authority is acting as a unifying force as legislators prepare to meet in Denver this week to continue work on an interstate compact that would create a single source of filing for life insurance products.

The specter of a federal charter is unifying state insurance regulators and state legislators in purpose. Rather than arguing philosophy, their efforts are aimed at smoothing out details.

As the National Conference of State Legislatures holds its annual conference in its home city of Denver, it is expected that an updated version of the compact will be discussed, although any action may be deferred until October.

The compact draft up for discussion is expected to be the latest version by the National Association of Insurance Commissioners, Kansas City, Mo., that was due to be released by July 19.

That document is the product of discussions between the NAIC, NCSL and National Conference of Insurance Legislators.

A major issue is who should be represented on a management committee to oversee the compact.

Big states are arguing that because they collect the lions share of total industry premium, that they should have a larger representation. Smaller states counter that they need to have a big enough say over decisions in the running of the compact.

Two of four proposals are currently receiving the most interest from legislators: a “big state” option and a plan proposed by Ohio Insurance Director Lee Covington.

The “big state option” would include the six largest states, using premium volume as a measure. There would also be four zone representatives and two at-large members under this plan.

The other plan proposes a 14-member committee that would include California, Florida, Illinois, New York, Pennsylvania and Texas, all states with premium with at least 4.5% of the market. Four medium-sized states with premium of between 2%-4.5% of the market would be represented as well as four smaller states with premium under 2% of the market.

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

States that comprise most of the premium will want a vote, says New York State Senator William Larkin, Rep.-Con., New Windsor, N.Y., and NCOIL president, who adds, “I think that they should have it.”

Larkin also says that when there is representation on the managing body of the compact, the governor of a state should decide on whether it is the insurance commissioner or another official who fills that slot.

If the details can be worked out, Larkin says, issues that have driven discussions of a federal charter such as the need for speed-to-market, will be taken care of. Modernization can be accomplished, he adds.

Rep. David Counts, D-Knox City, Texas, a past NCOIL president and a representative of NCSL, says that if states are to retain the ability to regulate insurance, they need to be willing to compromise and give up a little. The alternative, he continues, is to “fork over everything to a federal charter. A federal charter is a very wrong direction to go.”

New York State Senator Kemp Hannon, R-Nassau, notes the “very real, ongoing encroachment of the federal government.”

He adds that the concept of a dual charter might sound “seductive” but could preempt state laws that were considered important by consumers. In New York, Hannon adds, the banking industry has experienced preemption of laws by federal banking authorities.

North Dakota Insurance Commissioner Jim Poolman says that although there is still “push and pull” over the issue of large and small states roles on the management committee, it seems like there is potential for compromise.

One powerful reason he cites is a pragmatic one: the desire to keep premium tax revenue with states. “It is a potentially strong selling point.” If the federal government takes over the responsibility of regulating insurance, it will need to find a way to fund that function, Poolman explains.

The timeline to get a finalized compact proposal out to the states is aggressive but achievable, Poolman says.

In order to be addressed in the January 2003 timeframe the NAIC is contemplating when it goes to state legislatures, the compact would need to be put on the legislative agenda in many states this fall, he explains.

Another point that still needs to be determined before the plan is brought to state legislatures is inclusion of long term care insurance.

Interviews suggest that the issue of having LTCI as a product line covered in the compact is still under discussion. Proponents, such as the American Council of Life Insurers, Washington, say including LTCI is important for the industry because it will be difficult to reapproach legislatures later on to add it to products covered by the compact.

Those who favor waiting say LTCI is still evolving and the products complexities as well as variations in different states warrant waiting until a later date before including it under the compacts authority.

Reproduced from National Underwriter Life & Health/Financial Services Edition, July 22, 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.


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