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A Divided NAIC Adopts Compact For Life Product Approvals

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San Diego

An interstate compact that would allow life insurance products to be filed through a single body rather than through 51 jurisdictions was adopted despite misgivings of many insurance commissioners, unified opposition from consumer advocates and questions from 44 attorneys general.

The division among insurance commissioners became obvious during a discussion just prior to the 37-13 adoption of the Interstate Insurance Product Regulation Compact at the winter meeting of the National Association of Insurance Commissioners here.

The model was to be reviewed by the insurance committee of the National Conference of State Legislatures, Denver, when it meets on Dec. 11, although Cheye Calvo, an NCSL representative, said much of 2003 would be spent educating NCSLs 7,382 state legislators about the compact.

The National Conference of Insurance Legislators, Albany, N.Y., said it is supportive of the concept and intends to start an educational effort with a February panel on the compact.

The compact would regulate life, disability, and long-term care insurance as well as annuities.

Indeed, outgoing NAIC president Terri Vaughan, who has led the effort to forge a compact, said the effort to enact it would not be an all-out push, but rather, a more gradual process of education and feedback. But, she added, legislators had said that a final product needed to be delivered before they would introduce the plan, and consequently, NAIC membership needed to adopt the model.

Some commissioners questioned adopting a compact that they said was not a finished product. During a special executive and plenary session, they recommended delaying adoption until groups including the National Association of Attorneys General felt more comfortable with the compact.

For instance, Harry Low, California insurance commissioner, said that “until there are strong indications of what the standards are, we wouldnt be comfortable voting for a work in progress. We need a final product that we are comfortable with.”

Commissioners also expressed concerns that their authority to protect consumers in their state would be minimized because of broad language in the compact that would reduce their authority.

One instance raised by Maryland Insurance Commissioner Steve Larsen was the required authorization by the compact commission before a commissioner could bring action for an advertisement not approved by the commission.

But Oregon Insurance Administrator Joel Ario urged commissioners to look at “big picture considerations.” He said the concept would be good for consumers and that a deferral would be used by opponents to suggest the compact is fundamentally flawed.

Frank Fitzgerald, Michigan insurance commissioner, said failure to move forward with the compact would put insurers at a disadvantage in the financial services world.

And, Connie OConnell, Wisconsin commissioner, noted the threat of federal preemption of insurance regulation, saying “it would be a race to the bottom.” Consumer advocates had used the term to describe the “regulatory arbitrage” that would pit federal and state regulation against each other.

Still, commissioners including Chuck Cohen, Arizona director, said that “based on the content and reality of this compact, I dont believe it is sound, accountable and an appropriate form of regulation it is too disassociated from the citizens of Arizona and other states.”

Every funded consumer representative opposes the compact and “if it doesnt pass muster, we should take pause and say, no, it is not ready,” said James Bernstein, Minnesota commissioner.

In fact, during a consumer liaison meeting, these funded consumer representatives raised concerns such as the inclusion of long-term care in the compact.

In California, consumers would lose in 39 areas regarding LTC protections, according to Bonnie Burns, a funded consumer representative and consultant with California Health Advocates, Scotts Valley, Calif. The reason, Burns explained, is that the compact would reference a NAIC long-term care model that “lags” California law by five to seven years, with the exception of rate stability requirements. This is particularly important given the evolving nature of LTC insurance, she said.

Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas, said he is disappointed that the current model is “so unbalanced to industry interests and lacking in accountability. It is a virtual wish list for the ACLI [American Council of Life Insurers, Washington.]” Regulatory ability to act would be restrained, he said, and if speed-to-market, rather than effective regulation is the goal, there is no incentive to strive for high rather than low standards.

“It is an opportunity missed to make the case for a vital role of state regulation of insurance,” he said.

Linda Lanam, a vice president with the ACLI, responded, saying, “a sincere effort was made by Terri Vaughan to be responsive to everyones needs. The latest drafts language is not something that ACLI is totally happy with but it falls within an acceptable framework that the ACLI board has established, she added.

Kevin Hennosy, publisher of, Kansas City, Mo., called the compact draft “fatally flawed” and recommended that it be “voted down as soon as possible.” Hennosy also noted the anticipated high turnover of commissioners, saying, “it is not fair, right or credible to take this type of step and commit people to a major initiative.”

It would be a commitment to “a race to the bottom,” according to Hennosy. And one that would be opposed by major consumer organizations and would damage the credibility of state regulation.

Vaughan said she was “disappointed in the response of consumer advocates because the compact would make regulation more efficient by better allocating resources and providing more input into state standards that would ultimately improve products.

Vaughan also noted that “a race to the bottom is not the way regulators have acted in the past and it is hard to believe that would change. Consumers come first under the compact.”

But in a letter from the National Association of Attorneys General, Washington, it was stated that “the possible last minute changes to the proposed compact were made to prevent the unintended consequence of completely preempting enforcement by Attorneys General in the area of insurance.”

The letter continued, “It is unusual, however, for an interstate compact to directly address state laws protecting consumers from unfair or deceptive conduct” and urged that more time be given to the process.

Legislators also are seeking additional time. For instance, Louisiana Rep. Shirley Bowler raised concerns that the compact would skirt public accountability, public bid laws, open meeting laws and civil service laws. “How accountable to the public will it be?” she asked.

Rep. Kathleen Keenan of Vermont, NCOIL president, said legislators are also consumers and consumer advocates and that despite questions about the compact, she is supportive of the idea. It could be beneficial to a small state like Vermont that has limited resources, she added.

Reproduced from National Underwriter Life & Health/Financial Services Edition, December 16, 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.