Product Filing Compact Takes Tentative Step Forward

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A draft model of an interstate compact that would create a single point of filing for life insurance products took a tentative step toward adoption on Oct. 11.

A working group of the National Association of Insurance Commissioners, Kansas City, Mo., adopted an amended model but excluded several contentious issues that were raised during the compacts discussion. Those issues will be addressed more fully before the model goes before the NAICs executive and potentially plenary committee on its way to full adoption.

Insurance regulators and legislators say that the compact is the best way to preserve efficient state regulation and show that there is not a need for federal regulation of insurance.

Nine states voted to proceed with the draft although states including California and Florida qualified their vote by noting the need for strong standards in the compact. Florida remains concerned about the time permitted to opt out of a standard before the standard would become a requirement for that state.

The drafts opt-out provision has been considered an important one. Compact supporters say that it is needed to ensure uniformity while some state regulators maintain that they want the option to opt-out of a compact standard if they believe standards in their states are more exacting.

The current draft has a 90-day time frame for a stay if a compact state is going to opt out of a standard.

However, regulators in states such as Florida have indicated that in some cases, it can take as long as a year to advance an opt-out through legislation or a rule and in some cases there is no option to develop an emergency rule to opt out of a compact standard.

Draft language is being proposed that will seek to address the issue. The language would allow a commissioner or legislator to petition for a stay of the uniform standard between 15 to 30 days before the effective date of the standard. Under the proposed language a stay could be granted if the opt-out is being “diligently pursued” and has a “substantial probability of success.” The stay would be postponed by “at most 90 days” unless renewed by the commission. The stay could be terminated by the commission if the legislation has been defeated or the rulemaking process terminated.

Another controversial point that was described as “very fundamental” to what an interstate compact does, was a point on the compacts language regarding opting out of standards.

Montana Insurance Commissioner John Morrison, raised the point that addresses 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 that the word “content” could be used to argue that courts could not adjudicate issues regarding 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. It is a radical notion and certainly one I dont want to have any part of.”

Later, he added, that when issues came up in court regarding the content of a policy, an insurers attorney could argue that the court did not have any jurisdiction on the issue. “The likelihood of the language being used for the purpose Im talking about is 100% inevitable. 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 that the issue was of great concern to insurance departments in the western zone of the NAIC.

To allay those concerns, regulators discussed different wording that would negate such a result and a decision was made to work on language that would make it clear that this was not the intent of the compact.

The American Council of Life Insurers, Washington, expressed concern over the potential for the draft to significantly change. The ACLIs board of directors met on Oct. 13 and unanimousely endorsed the Sept. 27 draft.


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 21, 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.