The Debate Over A Compact Has Given Rise To Fresh Ideas
How do you take a state-based system of insurance regulation, streamline it and make it run more like a federal blueprint for insurance oversight that is gaining currency as a way to regulate insurers?
Moreover, in creating such a system to approve products, how do you keep big states happy, while not ignoring the needs of small states, and win the support of legislators, insurers and consumer advocates?
The answer is very carefully, thats how.
This is why the decision of the National Association of Insurance Commissioners and its president, Terri Vaughan, to delay adoption of the draft of the Interstate Insurance Product Regulation Compact was a good one.
The draft was supposed to be adopted on Oct. 31 so it could be ready for review by the National Conference of State Legislatures in December. This, in turn, would allow it to be placed on legislative agendas currently being prepared for the 2003 legislative session.
But growing concern from many quarters on topics ranging from language that would pre-empt the authority of state courts to the strength of standards for products such as long-term care insurance prompted the NAIC to extend its timeline. Additional comment will be heard this week before a scheduled vote next week.
Whatever the outcome of the hearing and the vote, and if passed, enactment at the state level, the discussion and work on the compact has fostered an evolution in how insurance regulation is perceived.
Concepts such as efficiency, competitiveness and willingness to change quickly are now considered givens, not choices.
By establishing this baseline, the compact discussion has engendered a number of ideas that can, at a minimum, be drawn upon to channel efforts to make state regulation more efficient:
From the NAIC, a proposed system that would minimize what many in the industry have been complaining about for years: desk drawer rules.
From state legislators including the National Conference of Insurance Legislators and the National Conference of State Legislatures, the willingness to entertain the very significant step of ceding authority.
From consumer advocates, an awareness of how critical meaningful representation is, and how the influence of a consumer voice, now strong at the state level, is not something to be taken for granted from a national entity.
From the American Council of Life Insurers, an ever more urgent awareness that the current competitive market environment is making the old drawn-out product approval turnarounds of up to 18 months unacceptable.
And from state insurance regulators, some interesting ideas on other ways to handle uniform product filing.
We are particularly intrigued by South Carolina Director Ernst Csiszars idea of incorporating product oversight with the market conduct exam function accompanied by a file-and-use system with strong auditing functions and sanctions for violations.
The regulatory puzzle embodied in the compact project may well come together during the next week and become the future mechanism for product filing for life insurance products.
Regardless of the outcome, however, ideas that have come out of the discussion can–and should–be used to deal with other regulatory issues that arise in the future.
Reproduced from National Underwriter Life & Health/Financial Services Edition, November 11, 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.