NAIC Compact Hits Speed Bumps On Fast Track

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An interstate compact proposal that is drawing mixed support as a way to provide a single point of filing for life insurance products, was scheduled to be moved up the approval ladder at the National Association of Insurance Commissioners after press time.

The draft of the compact, as it stands, would create a single body to oversee the approval of individual and group annuity, life insurance, disability and long-term care products.

The NAIC leadership, the National Conference of Insurance Legislators, and the American Council of Life Insurers all support the current draft and the effort in general. ACLIs board is scheduled to vote on the issue Oct. 13.

NAIC and NCOIL have said the compact is the best way to show there is no need for federal regulation of insurance.

The National Conference of State Legislatures, Denver, is monitoring the compacts progress and will discuss it further during a December meeting, says Cheye Calvo, program manager–employment and insurance issues.

While large states like Illinois and New York have indicated support for the compact draft, other big states, including California and Florida, have questions about the right of states to opt out of the compact if regulators believe standards in their states are more rigorous. The compacts standards are also a concern for the American Association of Retired Persons.

And some consumer advocates, such as Kevin Hennosy, publisher of SpreadtheRisk.org, Kansas City, Mo., say there are better alternatives to the compact form of regulation. Hennosy notes problems such as changing points in the compact after it has been enacted by states.

The compact, first announced in March, is on a fast track at NAIC so it can be ready for the 2003 legislative sessions.

As it currently stands, the compact gives a state insurance commissioner the right to opt out of a compact standard if there are “specific findings of fact and conclusions of law based on a preponderance of evidence” warranting the deviation from the compact standard. This is a more exacting standard than in previous drafts.

The language in the latest draft also presumes that the compact representative will be the state insurance commissioner unless a state maintains that another representative is warranted.

Additionally, it states that with the exception of long-term care products, the compact commission would not generally receive and approve any advertisement.

Michigan Commissioner Frank Fitzgerald, a co-chair of the compact working group, says regulators are in the process of talking with AARP and other consumer groups. He says regulators are open to listening to all comments but “hopefully, this is the final draft.”

While there is some concern among larger states over ceding authority, efforts have been made to make sure such concerns are met, says Illinois Insurance Director Nat Shapo, who is also NAIC secretary-treasurer. He says that efforts to put rigorous standards in place should give large states the comfort they need, adding that he intends to vote for the draft.

In fact, an earlier revision to the compact draft gave larger states more of a say on the management committee that would run the compact.

The goal is to establish standards and, if after discussion it is felt changes need to be made to those standards, then those changes can be made between the compacts introduction in the state legislatures and the time key votes are taken later in the session, he explains.

New York Superintendent Greg Serio says “New York is very supportive of [NAIC President and Iowa Commissioner] Terri Vaughans effort to get an interstate compact done.

“We need a deliverable for legislatures. The product doesnt have to be pristine, but we need a product.” Serio notes that in certain states, the legislatures meet every other year, increasing the importance of introducing a bill in January.

But, Kevin McCarty, deputy insurance commissioner in Florida, says “we have ongoing concerns we have expressed repeatedly. We are undecided at this point about how we are voting.”

These concerns include appropriate representation for the largest states, and the ability to opt out of a product line if there is the belief that a states standards are stronger than the compact standards, he adds.

For instance, McCarty says, it would be preferable not to include long-term care in the compact, but if it is to be included, then there has to be the ability to opt out for that line of business.

In California, the state legislature will not give up state authority because there is the belief the state currently has higher consumer protection standards, says Nanci Kramer, deputy press secretary with the California department.


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 14, 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.