A changing world for life insurance agents led the National Association of Insurance and Financial Advisors to support optional federal chartering of insurance companies and agents as one means to improve the insurance regulatory system, says NAIFAs CEO.
David F. Woods notes that in the past, most life insurance agents conducted most of their business 15 or 20 miles from their offices. But today, he says, many agents are doing business in multiple states.
The difficulty of getting licensed in different states, Woods says, is a factor behind NAIFAs policy change.
It is time-consuming, expensive and extremely cumbersome, he says.
Similarly, product speed-to-market is an increasing concern, according to Woods. Some states, he says, take as much as 2 years to approve new products and that is not good for consumers or for NAIFA members.
Finally, Woods says, there is the whole issue of increasing federal interest in the insurance industry.
There is no one in Washington, he says, who is responsible for industry oversight and who can act as an advocate not just for consumers, but for the industry as well.
For example, Woods notes the concern over Lifetime Savings Accounts, which would allow individuals to place money in a savings account, earn tax-free interest and withdraw the money at any time for any purpose without penalty.
This represents bad public policy at a time when the country should be promoting long-term savings, says Woods, who adds that he doubts whether the LSA proposal ever would have seen the light of day had there been a federal insurance advocate.
He stresses that NAIFA is in no way turning its back on state regulation.
Indeed, in a formal statement, NAIFA says it continues its century-long support for state regulation of insurance and confirms the associations commitment to improve the state-based system, including the regulatory modernization plan developed by the National Association of Insurance Commissioners.
However, Woods says, times have changed and a federal option may offer a system that can better meet changing times.
NAIFAs policy embraces certain federal initiatives that could work to improve insurance regulation.
These include optional federal chartering, the creation of a federal insurance advocate, an optional national producers license and other federal efforts to improve the regulatory system.
Woods says NAIFA worked closely on this issue with the American Council of Life Insurers. ACLI, he says, has been very sensitive to NAIFAs concerns and is incorporating NAIFAs suggestions in an OFC model.
Gary Hughes, senior vice president with ACLI, says NAIFAs new policy position represents a “very encouraging development.”
It is important to note, he says, that on the life insurance side of the business, there is now unanimity. Companies and agents, Hughes says, all view regulatory reform as a priority, and they have seen a federal option and a significant part of that reform.
Hughes notes the early drafts of OFC proposals tended to be written from a company perspective. While insurance companies would be able to choose between federal or state chartering, he says, agents complained that they were not being offered the same choice.
Since under these drafts, agents would have to obtain a federal license in order to sell insurance for a federally chartered company, Hughes says, agents saw these drafts as simply requiring them to attain yet another license.
Now, he says, they are working on a concept that would allow a state-licensed agent to sell for a federally chartered insurer or a federally licensed agent to sell for a state-chartered insurer.
Hughes says ACLI, NAIFA and others are working to put this concept into legislative language.
But NAIFAs policy change drew criticism from one of its colleagues in the insurance agent community, the Independent Insurance Agents and Brokers of America, an Alexandria, Va.-based association representing mainly property-casualty agents.
IIABA opposes OFC and instead is promoting a federal standards approach that would mandate uniformity while leaving actual regulatory responsibilities with the states.
Robert Rusbuldt, IIABAs CEO, argues that those advocating OFC are “playing with dynamite.”
People forget, he says, that in the 1970s and 1980s, the Federal Trade Commission and other executive branch departments and agencies intensely scrutinized the life insurance industry.
The government investigated, Rusbuldt says, the front-loading of commissions, state anti-rebating laws, suitability and rates of return on whole life policies.
Eventually, he notes, the industry had to go to Congress to get a law passed barring the FTC and other agencies from exercising any oversight over or studying the insurance industry.
But OFC, Rusbuldt says, will open a Pandoras box of federal government oversight. “The feds will go after the industry like gangbusters.”
IIABA, Rusbuldt says, understands the desire of the life insurance industry to have a single regulator, but the political reality is there is a huge number of potential unintended consequences.
IIABAs federal standards approach, he says, would give the life industry what it wants in terms of speed-to-market and agent licensing.
At the same time, he adds, it would not pose the dangers inherent in federal regulation.
Reproduced from National Underwriter Life & Health/Financial Services Edition, January 23, 2004. Copyright 2004 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.