When legislation enabling an optional federal charter for insurance companies was introduced in the Senate a few weeks ago, the National Association of Insurance Commissioners put forth the interstate compact it has developed as one way of showing the effectiveness of state regulation.
The Interstate Insurance Product Regulation Compact needs 26 states to sign on before it becomes an operating entity and as of April 14, the count stands at 23 with Oklahoma’s participation.
Sometime as early as this spring it is anticipated that enough states will sign on and the compact that will allow life insurers to file products in a single place will become a reality.
Life insurers have been pressing for a single point of filing for more than six years since a precursor of the compact, the Coordinated Advertising Rate and Form Review Authority, was tested and stalled.
But, the interstate compact is having better luck. In the last month alone three states have signed on. It is endorsed by life insurers as a way to speed up product filings, cut costs and increase competitiveness. It’s also pointed to as an example of why state insurance regulation works, according to interviews with National Underwriter.
However, one NAIC funded consumer advocate says the compact, as it stands now, will hurt consumers and deny them protections they have under the current product approval system with state insurance departments.
Both CARFRA, a speed-to-market effort of 10 states that offered a single point of filing but did not create uniform standards, and the compact are projects of the NAIC, Kansas City, Mo.
The compact covers four insurance products: life, disability, annuities and long term care. Products filed with the compact will be governed by standards first adopted by the NAIC and then by the compact commission. To date, 39 have been adopted by the NAIC.
Companies will still have the option of filing with individual states if products are not going to be sold nationally.
The compact should be operational in the first quarter of 2007, although it possibly could be up and running by year-end, according to Alessandro Iuppa, NAIC president and Maine insurance superintendent.
The NAIC will provide a $500,000 grant to help the compact start operations that will be housed in NAIC offices in Washington, Iuppa says. The current System for Electronic Rate and Form Filing will be used, he adds. (SERFF is an electronic filing system that allows companies to submit filings with state insurance regulators. The number of filings jumped from 3,694 in 2001 to 183,362 in 2005.)
The compact will bring benefits to companies and as a whole make the industry more competitive with other financial services industries, Iuppa says. Increased competitiveness will be possible because of the shorter product filing time, which he anticipates will ultimately be a lot less than one or two months. Part of the reason, Iuppa continues, is because it will be a one-stop process and it will be filed electronically. “I envision an all-electronic system,” he says.
Once the initial 26 states have signed on and the compact becomes operational, other states will also join, Iuppa believes.
“In 2002, when we said we would work on the compact, there was a huge amount of skepticism,” recalls Terri Vaughan, currently a professor at Drake University, Des Moines, Iowa, and the initiator of the compact project during her tenure as NAIC president and Iowa insurance commissioner.
Vaughan recounts testifying before Rep. Richard Baker, R-La., chair of the subcommittee on capital markets, insurance and government sponsored enterprises. There was some doubt as to whether a compact would be successful, she says.
The fact that the compact is so close to becoming operational is a “signal that state regulators are willing to make changes” in order to make regulation more efficient, she says.
Regulators in other areas of the financial services industry told her they had considered a compact but did not pursue the idea because they did not think it could be done, Vaughan says.
When insurance regulators at the NAIC decided to pursue a compact, other options such as going to the federal government and suggesting national standards, creating a system state by state, and facing potential deviations among states also were considered, she says.
But, Vaughan notes, it was the deviations among states that had already caused the CARFRA effort to stall and not be used by companies.
Vaughan says she is confident the compact will be used but adds that there were “periods of questioning” when considerable opposition arose from outside the ranks of the NAIC.
At one point as the compact wended through the NAIC process, groups including the National Association of Attorneys General, Washington, and consumer advocates raised concerns about how the compact would work.