NAIFAs Federal Charter Stance Will Mean More Lobbying Clout
The decision by the National Association of Insurance and Financial Advisors to support optional federal chartering of insurance companies and agents represents a major shift in the political landscape.
First, it significantly increases the lobbying impact of the life insurance industry. With NAIFA joining the American Council of Life Insurers in support of a federal option, the 2 largest trade associations in the life industry can present a united front to Capitol Hill.
The 2 groups now are united in believing that a federal option, not preemptive federal standards, must be a cornerstone of insurance regulatory reform.
Second, NAIFAs policy shift means that within the agent community, 2 major associations now support OFC.
On the property-casualty side of the business, the Council of Insurance Agents and Brokers, which represents most of the largest insurance brokerage firms in the country, also backs OFC.
There is significant grassroots muscle behind the OFC effort now.
NAIFAs policy shift was no doubt difficult for an association that has long favored exclusive state regulation of insurance.
But as NAIFA CEO David Woods pointed out, it reflects the realities of both the marketplace and the political environment.
Agent licensing has become a major burden for producers who increasingly do business in multiple jurisdictions.
And perhaps more important is the relentless scrutiny of life insurance tax issues in Congress and at Treasury, too often based on misinformation.
The recent firestorm over corporate-owned life insurance may never have happened had there been a federal insurance department that could have provided assurances that any alleged abuses were based on a legal landscape that no longer exists.
A federal insurance department may have been able to persuade Congress that variable annuities should receive the same treatment on dividend taxation as other investment products.
ACLI merits congratulations for working with NAIFA to develop an OFC model that serves the interests of both companies and agents.
The first OFC drafts created a single license for insurance companies but not agents.
ACLI and NAIFA are working on legislative language that would give agents the same benefits of a single license as companies.
The Independent Insurance Agents and Brokers of America, a p-c group that backs federal standards and opposes OFC, criticized NAIFAs policy change. IIABA noted that in the past, the Federal Trade Commission has challenged the life industry on issues such as commissions and suitability.
This is a valid point, but presumably the OFC legislation can be drafted in a way that would provide exclusive jurisdiction for market conduct and consumer protection to the federal insurance office.
But we think IIABAs criticism raises a different issue. It reinforces a point we made in an earlier editorial that the life insurance industry must detach itself from the p-c industry if OFC is to be implemented in the foreseeable future.
As we said before, life insurance is an entirely different industry from p-c insurance. The opposition of some in the p-c industry cannot be allowed to undermine the new unity in the life industry on the critical issue of regulatory reform.
Reproduced from National Underwriter Life & Health/Financial Services Edition, January 30, 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.