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Agent Groups Clash Over OFC

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Rival insurance agent groups who dispute each other’s concepts for insurance regulation reform have clashed in print with dueling op-ed pieces in a Capitol Hill newspaper.

The implication of the exchange in The Hill, a thrice-weekly tabloid circulated primarily on Capitol Hill, over the last several weeks over legislation that would create an optional federal charter is that insurance regulation will be a hot topic in Congress next year regardless of who is in the majority.

Some proponents of federal regulation have also proposed a life-only OFC under the premise that life products are more suited to federal regulation.

The issue of insurance regulation also came up in comments made by Sen. Trent Lott, R-Miss., to The New York Times that he will introduce next year legislation “challenging” the industry’s exemption from anti-trust laws.

In any event, a new agents’ group, Agents for Change, wrote an op-ed piece in The Hill on Oct. 11, criticizing as a mere “band-aid” an earlier op-ed piece by the CEO of the Independent Insurance Agents and Brokers of America. That earlier piece said insurance regulation needs to be reformed, but that reform should remain state-centric.

The comments by Peter Ludgin, executive director of Agents for Change, was prompted by an op-ed piece by Robert Rusbuldt, CEO of the IIABA, which acknowledged that “serious, significant reform” of insurance regulation is needed.

Rusbuldt proposed in his statement a 3-step reform plan calling for “vigorous, but targeted” reform and modernization of the current state regulatory system.


The keystone of the IIABA proposal is a new “NARAB,” or National Association of Registered Agents and Brokers, an entity created by the 1999 Gramm-Leach-Bliley law that resulted in some state uniformity in licensing of producers.

In his response, Ludgin said he “applauded” Rusbuldt’s proposal because “ideas matter.”

But, Ludgin added, “NARAB II is a band-aid solution. Today, some of the largest markets are not fully participating in NARAB, many states are not truly reciprocal, and it has done little to fix agency licensing problems.”

He was also critical of Rusbuldt’s call for “significant reforms” to be made to the product approval process for life and property-casualty forms.

For life products, Rusbuldt said, “which are more national in scope, federal legislation could build upon the National Association of Insurance Commissioners interstate compact for approval of life, disability, and long term care policy forms.”

Ludgin, however, said that regarding point of entry for life products, the NAIC’s interstate compact “is a positive step in the right direction.

“But it has also proved just how difficult it is to get 56 jurisdictions onboard without federal intervention,” Ludgin said. “Only 28 states, representing 44% of the premium volume, have approved the compact. Moreover, states can opt out at any point.

“Almost 4 years after the initial model was adopted, it has now just reached the point where it can become operational, and it will still take several months to get the organization up and running,” Ludgin argued.

“And, when the benefits do start flowing to the public, millions of insurance consumers will be left out because the states in which they reside are not part of the compact,” Ludgin said.

Under the NARAB-II proposed by Rusbuldt, a new private, non-profit entity responsible for agent/broker licensing would be created through federal law. It would be managed by a board that included state insurance regulators and industry representatives, including an independent agent.

Rusbuldt said in his piece that NARAB-II “would give agents and brokers a choice between the current state-by-state licensing system and a national licensing portal (as long as that producer is duly licensed in a state).

“Agents and brokers comfortable with the current system and those licensed in one or a couple of states could choose to remain licensed in the traditional manner with no outside interference,” Rusbuldt suggested.

“Producers operating in multiple jurisdictions unhappy with the current licensing burdens, however, could opt for NARAB and the ease of national licensing through a Self-Regulatory Organization (SRO)-type entity separate and apart from the federal government,” he said.

For producers already licensed in a state, NARAB would effectively create one-stop producer licensing for additional non-resident licenses, Rusbuldt argued.

“It would preempt state laws regulating non-resident insurance producer licensing if they discriminate against NARAB agents based on non-residency, or if they impose additional licensing requirements on non-resident NARAB agents beyond those established by the NARAB board,” he said. “This would be a significant reform for all agents who have non-resident licenses, and it can be accomplished without a federal regulator.”

Ludgin, however, disagreed. “Agents for Change believes in open markets, choice and competition,” he said. “Any change must result in the best possible outcome for our customers.

A global marketplace

“An OFC is the right fix,” he said.

“We live in a global marketplace,” Ludgin added. “Shouldn’t consumers be able to take advantage of competitive market forces in choosing their insurance, the same way they do in choosing their bank or credit card?”

Regarding Lott’s proposal for an to the industry’s anti-trust exemption, the linchpin for state insurance regulation, an industry lobbyist said it is a reaction to how the industry handled his claim for damages to his home in a coastal area of Mississippi as a result of Hurricane Katrina.

The lobbyist said Lott is “tapping into anti-insurance industry sentiment prompted by how the industry settled hurricane-related claims, and by the extremely hard market in those areas.” The lobbyist added that, “Residents of those areas also feel they have been treated unfairly by the way the industry handled their claims.”