District of Columbia Insurance Commissioner Larry Mirel has hit upon a simple formula he believes can significantly streamline insurance regulation and is already putting his plan into action.
Mirel has issued a bulletin stating that effective Jan. 2, 2003, D.C. will accept the findings of regulators in other jurisdictions that an insurance company is fit to be licensed in the District.
Thus, if an insurer is licensed in another jurisdiction that meets certain requirements, D.C. will issue a license based on that fact.
Mirel says he believes this “mutual recognition process” can solve many of the problems currently facing state regulation.
Mirel tells National Underwriter that his plan is really not that different from the current drivers license system. Each state recognizes as valid a drivers license issued by another jurisdiction, he says. If drivers had to get separate licenses from every state, Mirel says, it would take a long time to drive across the country.
He says that under his plan, if an insurance company is licensed in a jurisdiction accredited by the National Association of Insurance Commissioners, or from a state that has standards of review comparable to those in D.C., that will serve as prima facie evidence the company is fit to receive a D.C. license.
Mirel adds that his plan does not mean that D.C. or any jurisdiction must give up its authority to conduct financial or market conduct examinations. These can still be done after the license is granted, he says.
Mirel says that while he was developing his plan, one thing he was worried about was a “race to the bottom.” (That is, insurance companies getting licenses from jurisdictions with weak standards and then seeking to enter other jurisdictions.)
However, he says, he believes he has a way to resolve that issue. Under his plan, if an insurance company does not conduct at least 20% of its business in its state of domicile, it must submit a license from the jurisdiction where it conducts the largest portion of its business.
In a memo to other regulators, Mirel says he issued the bulletin unilaterally. However, he urges other regulators to make the process reciprocal by adopting the same or a similar bulletin.
Mirel adds that if there is interest in the idea, and it works, the same kind of deference could be granted to certain products, such as life insurance and annuities.
To his “surprise and delight,” Mirel says, the initial response to his plan has been positive. A lot of interest was expressed by his colleagues when he presented the plan at a meeting of NAICs Northeast Zone, he says.
If the plan was made reciprocal by all members of the Northeast Zone, he says, that would be a terrific start.
In addition, Mirel says, some insurance companies have said it is a good idea.
Jack Dolan, a spokesman for the American Council of Life Insurers, praises Mirel for offering “a good and refreshing idea on improving insurance regulation.”
ACLI, he says, is very concerned about uniformity and eliminating the differing rules governing the industry in the states.
In addition, Dolan says, ACLI wants states to have the resources they need to regulate uniformly. Mirels plan doesnt appear to directly address those critical issues, he says.
While inconsistent laws, department funding levels and administrative approaches from state to state may render the plan problematic in some contexts, according to Dolan, it nonetheless is a valuable contribution to the debate on regulatory reform.
In his memo to other regulators, Mirel notes that state insurance regulation is under attack. NAIC, he says, has worked hard to find ways to speed up the approval process and come to grips with the lack of uniformity in state laws and procedures.
While he supports efforts such as the interstate compact, he says, his plan would allow the system to work better without the need for additional legislation and with no loss of authority for individual commissioners.
“If we were able to trust each other more, and have confidence in the work of our fellow regulators, a great deal could be accomplished on a voluntary basis,” Mirel says.
In other news, ACLI is proposing a solution to the problem of applying the anti-money laundering requirements of the USA Patriot Act to independent agents.
The issue involves the proposed Treasury Department rule that could require life insurers to amend existing contracts with independent agents to assure compliance with anti-money laundering standards.
In an earlier letter to Treasury, ACLI says this would be unworkable and incredibly burdensome for insurers.
In a new letter to Treasury, ACLI suggests a four-point alternative plan. ACLI says:
First, independent agents should qualify for the liability protections and immunities in the act.
Second, agents should report suspicious activities directly to federal regulators when no insurance application is completed.
Third, agents should be required to report suspicious activities to the insurance company when an application is completed, and the insurance company becomes obligated to undertake an investigation and report.
Fourth, if an agent reports directly to Treasury and an application is completed, the agent should inform the insurance company and the company should not be required to submit an additional report.
“This solution provides a much more efficient resolution to the distributor issue, addresses the situation when an application is not completed and achieves the reporting goals of the USA Patriot Act,” ACLI says.
Reproduced from National Underwriter Life & Health/Financial Services Edition, December 30, 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.