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Regulation and Compliance > State Regulation

Research: OFC System Could Cut Producer Costs

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Creating a federal regulatory option could cut U.S. producer licensing costs $268 million to $377 million per year.

Laureen Regan, an associate professor at Temple University, has published that estimate in an analysis commissioned by insurance industry groups that want Congress to permit insurers and producers to choose between state regulation and a new federal insurance regulatory system.

In addition to cutting licensing costs, an optional federal charter system would help producers by creating uniform requirements for pre-licensing and continuing education, Regan writes.

Regan’s analysis was released by the American Council of Life Insurers, Washington, and the National Association of Independent Life Brokerage Agencies, Fairfax, Va.

The ACLI and NAILBA are backing the National Insurance Act, a bill introduced as S. 40 in the Senate by Sens. John Sununu, R-N.H. and Tim Johnson, D-S.D., and as H.R. 3200 in the House by Reps. Melissa Bean, D-Ill., and Edward Royce, R-Calif.

Regan reports that the typical insurance producer carries an average of 7.9 licenses, at a cost of about $100 per license.

An OFC system could cut the total cost of about $432 million by at least 60%. Regan writes.

S. 40 would let a producer use one license to sell products in all 50 states, and it “would also eliminate countersignature laws that require an out-of-state agent to have the signature of an in-state licensed agent and to share commissions before selling business in the state,” Regan writes.

The National Association of Insurance Commissioners, Kansas City, Mo, tried to harmonize states’ producer licensing rules in 2000 by adopting the Producer Licensing Model Act.

Despite the approval of that model, “there continue to be differences in licensing fees and continuing education requirements across states,” Regan writes.

At the end of 2005, only 59% of states were using the PLMA pre-licensing education standard, and only 22% were using the PLMA continuing education requirements, Regan writes.

NAILBA Chairman John Felton IV says an OFC system would be good for brokerage general agents as well as for retail producers.

“On average, BGAs spend $12,600 and 347 hours of staff time annually to be in full compliance with the differing insurance regulations that exist in each state,” Felton says.

The National Association of Insurance and Financial Advisors, Falls Church, Va., says it will continue to study whether it ought to support the OFC concept.

“We are grateful for any additional data and information on this issue,” says Michael Kerley, a senior vice president at NAIFA.


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