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Regulation and Compliance > State Regulation

Just Poking Around

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Some years ago, I was pruning a pyracantha bush when I spotted a huge wasp nest in among its foliage. I looked it over carefully and could not discern any signs of life. It appeared that it had served its purpose and was no longer inhabited. But just to be sure, I gave it a few sharp pokes with a stick before attempting to remove it. Suddenly the deceptively benign nest came alive, and, like speeding bullets, I was hit by 3 of its warriors. The most painful was a hit in the ear. In a matter of minutes, I looked like a seasoned wrestler, complete with cauliflower ear and lumps on my head.

It was a painful lesson that I have never forgotten. When you see something that has the potential to be hostile, “don’t poke around it,” for any provocation may produce a painful response.

It appears to me this is a lesson that some in our business refuse to consider or heed. Poking around federal governmental entities in search of a better regulatory climate, while benign on the surface, also has the potential for painful results. I have always understood why federal regulation of insurance would have some appeal in the law departments of major companies. But, for the life of me, I have never understood why the marketing departments of those same companies did not offer strenuous objections. Surely the probable loss of anti-rebate and replacement statutes offered by state regulation would offset any possible gain in policy filing and approval in federal regulation.

There have always been some in the government’s hornet’s nest who would relish inflicting a bit of pain on our business. Our past experiences with the Federal Trade Commission are a case in point. I remember that battle as if it were yesterday, and indeed there was pain that took several years to heal.

And now we have evidence to support the foregoing concerns. Sen. Patrick Leahy, D-Vt., has introduced Senate Bill 618, which would repeal the McCarran-Ferguson Act that has ceded regulation of insurance to the states for the past 60-plus years. While not perfect, this action has enabled the business to grow far beyond anyone’s expectations. Given the fact that one of the sponsors (a warrior, in this case) is Sen. Trent Lott, minority whip, and the fact that he has vowed vengeance upon the industry because of a dispute over his personal insurance claim following Hurricane Katrina, one could hardly view S. 618 as a positive for our business. In fact, it would turn much of insurance regulation over to the FTC, and it would not eliminate state regulation. Double trouble from poking around!

Because the industry has broadened its product base, we have already attracted additional regulation from other agencies (the Securities and Exchange Commission and the National Association of Securities Dealers, in particular) and I do not know of anyone who views this development as making life simpler for field people or home office people.

Linda Koco, in an excellent article appearing in the Feb. 5 issue of National Underwriter, chronicled the growing number of non-insurance regulators that are “poking around” in our business. I am not suggesting that such interest by these regulators is unjustified; rather, I’m simply agreeing with Linda that they are there and we have to learn to live with their dictates. We should also have learned by now that substituting one type of regulator for another is an unlikely event–the usual result is that you wind up with both.

I was particularly intrigued by a section of Linda’s article that reports the following observation by Danette Kennedy, attorney and CEO for Gorilla Compliance LLC, Des Moines, Iowa:

“In particular, if an insurance agent is selling an insurance product, and if the money is coming out of another product (including other heavily regulated securities products), ‘be very careful,’ Kennedy said. The recent actions are putting advisors on notice that those who talk about securities products ‘need to be licensed to provide this advice.’”

The licenses Kennedy was referring to were those of an investment advisor. As I read this, I could not help but wonder why this standard has never been applied to the “buy term and invest the difference” crowd. When the A.L. Williams people were advocating and executing the wholesale replacement of whole life policies with their term insurance and mutual funds, I doubt there was a single properly licensed “investment advisor” in the entire organization. Certainly, none of their part-time sales people were. I agree with Danette Kennedy regarding the transfer of funds, but the rule should work both ways and in a single standard.

My position on insurance regulation is well known, and I have expressed it in this column many times. I am also certain some find it very tiring. Be that as it may, I am a staunch defender of state regulation and continue to believe the industry would achieve better results by working more closely with the National Association of Insurance Commissioners and individual states.

Past experience with Washington has not always been helpful to our business. Or, as the ancient Chinese philosopher Mencius put it, “Would you know politics, read history.”


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