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Product-Filing Compact Takes Tentative Step Forward

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NU Online News Service, Oct. 14, 11:25 a.m. – A working group at the National Association of Insurance Commissioners, Kansas City, Mo., has pushed a draft model of an interstate product-filing compact another step toward adoption.

Compact advocates want to streamline the process that carriers use to seek approval of new life insurance products, by setting up a single entity that would accept all life insurance product filings for participating states.

The NAIC working group adopted an amended model agreement that excludes several controversial issues. Commissioners expect to address those issues more fully before the model goes before the NAIC’s executive committee, regulators say.

State insurance regulators and legislators say establishing the product-filing compact is the best way to preserve efficient state regulation and show that there is no need for federal regulation of insurance.

Nine states voted to proceed with the draft, although some states, including California and Florida, qualified their vote by arguing for the need for strong standards in the compact. Florida officials say they are worried that the proposed standard would not allow enough time for a state to opt out before a standard became a requirement for that state.

Compact supporters say the compact model must set strict limits on states’ ability to opt out of compact standards, to ensure uniformity. Other state regulators say their states should have the right to opt out of a standard if they believe their states’ standards are more exacting.

The current draft allows 90 days for a state to opt out of a standard. However, regulators in states such as Florida say that it can take as long as a year to advance an opt-out through legislation or rule-making, and that, in some cases, there is no option to develop an emergency rule to opt out of a compact standard.

Working group members are considering draft language that would would allow a commissioner or legislator to petition for a stay of the uniform standard of between 15 days to 30 days before the effective date of the standard. Under the proposed language, a stay could be granted if an opt-out measure were being “diligently pursued” and had a “substantial probability of success.” The stay would be postponed by “at most 90 days,” the proposal states, unless renewed by the commission. The commission would terminate the stay if the legislation were defeated or the rulemaking process terminated.

Another controversial point that was described as “very fundamental” to an interstate compact was the compact’s language for opting out of standards.

Montana Insurance Commissioner John Morrison raised the binding effect of the compact. The draft states that the “commission shall constitute the exclusive provisions applicable to the content, approval and certification of such products and advertisement.”

Morrison said the word “content” could be used to argue that courts could not adjudicate issues about policies. Courts as well as state legislatures and insurance departments, under the current language, would be ceding authority, he explained.

“That I suggest is a radical idea,” he said. “It is a radical notion and certainly one I don’t want to have any part of.”

Later, when issues came up in court about the content of a policy, an insurer’s attorney could argue that the court did not have any jurisdiction on the issue, Morrison said.

“The likelihood of the language being used for the purpose I’m talking about is 100% inevitable,” Morrison argued. “It is 100% inevitable that as soon as it is passed and a policy comes up in litigation that the insurer will say, ‘You do not have authority to enforce this.’”

Morrison said the issue was of great concern to insurance departments in the West.

To allay those concerns, regulators discussed different wording that would redress such a result. They decided to work on language that would make it clear that it was not the intent of the compact to undermine state authority over policy content.

The American Council of Life Insurers, Washington, had been talking about supporting the product-filing compact and was scheduled to discuss the draft at a Sunday meeting. ACLI representatives were not available at press time to discuss the results of the meeting.


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