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Regulation and Compliance > State Regulation

Worth More Than A Dime

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Finally, the moves of non-insurance regulators into the business of state insurance regulation will get a going over. In the process, so too will the status of insurance regulation–who’s doing it and where it is going (whether the optional federal charter becomes reality or not).

Here is what is happening: The National Conference of Insurance Legislators, Troy, N.Y., says its research arm, the Insurance Legislators Foundation, is conducting a study on state insurance authority.

It will be an “in-depth objective look at state insurance regulation in its current form,” says NCOIL. The researchers are Lord, Bissell & Brook; Navigant Consulting Inc.; and Political Science Prof. Joseph Zimmerman from The Rockefeller College of Public Affairs and Policy at the State University of New York, Albany. The preliminary review is slated for NCOIL’s summer meeting on July 21, 2007.

Some readers might give a ho-hum to that piece of news. After all, studies are a dime a dozen these days, right?

However, this particular study may well be worth more than a dime. That’s because it will not only examine the components of state regulation and where such regulation works and does not work; it will also probe into some areas about which individual firms, advisors and regulators do not want to talk publicly, but about which they deeply want investigation and scrutiny.

That area has to do with what Michigan Sen. Alan Sanborn, NCOIL’s current president, calls the “ever increasing blurring of the lines of responsibility with regard to state insurance regulation.”

As a result of this blurring, he says, NCOIL feels it is necessary to examine objectively the role played by “legislators, regulators, state attorneys general, the courts, the National Association of Insurance Commissioners, as well as additional governmental and other entities” in the regulation of insurance.

Depending on how deep the analysis goes, it may mark the beginning of a serious state-side effort to clarify just who regulates what. Where products are concerned, it may also help straighten out which body should be heeded when designing, marketing and distributing insurance products.

This effort is coming none too soon.

As reported in National Underwriter’s Jan. 22, 2007, cover story, “non-insurance regulators” have increasingly been muscling in on state insurance regulatory matters via administrative and enforcement actions, typically involving sale of certain insurance products. Non-insurance regulators include the offices of state AGs, securities and commerce departments, and governors.

These investigations typically do not skewer insurance products themselves, nor do they nab the product issuers. Rather, they go after misrepresentations about insurance products made to consumers by agents, advisors and reps. Some also go after credentialing and suitability, especially involving sales to seniors.

Some state insurance regulators have been a bit sanguine about the non-insurance regulatory moves, saying turf is turf. That is, if the actions involve regulations under the jurisdiction of the other regulatory bodies, it is not the insurance department’s place to object, intervene or criticize.

Still, many industry professionals and certain insurance regulators have been privately seething over what they believe to be the non-insurance regulators’ intrusion into state insurance regulatory purview. They do not quibble over the rooting out of misconduct; they quibble over who is taking the action and what rules are applied. They worry that the actions create confusion over which regulators govern the industry and for what, and which regulators the public should to turn to and for what.

Some critics note that similar concerns have been simmering over federal interest in regulating annuities, and that the NASD and the Minnesota Department of Commerce last year co-hosted an Annuity Roundtable in a move to air jurisdictional issues and create clarity. That session, held in May 2006, has not brought formal change as of yet, but at least it has helped put key issues out in the open, they say.

Some interests have been hoping that some “body” would make a similar collaborative effort at the state level–if not the National Association of Insurance Commissioners, then somebody else.

Now, in the NCOIL study, they may get just that, or at least a start.

In his remarks, Michigan Sen. Sanborn said, “The allocation and delegation of state authority to regulate the business of insurance is clearly a legislative matter.” But, as can be seen, the lines of demarcation are not all that clear anymore.

Let’s hope the NCOIL researchers really are objective and consider all aspects of the situation. The public deserves it, and so do the commercial interests and regulators who serve the public.


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