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Life Health > Life Insurance

Industry Groups Spar Over OFC

By Arthur D. Postal

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Key life insurance trade groups voiced different opinions last week on whether Congress should pass legislation creating an optional federal charter for insurers.

The differences between the two groups, the National Association of Independent Life Brokerage Agencies and the National Association of Insurance and Financial Advisors, were aired in testimony before the Capital Markets Subcommittee of the House Financial Services Committee on Oct. 30.

At the same hearing, a consumer advocate was highly critical of state insurance regulation.

In his testimony before the panel, John W. Felton IV, chairman of NAILBA and president of the Tennessee Brokerage Agency, said NAILBA believes an OFC approach would provide consumers with increased access to competitive and market reflective products more quickly.

“The reduction of costs associated with working with one regulator, not fifty, would be reflected in the pricing of products,” Felton said. “This would have the effect of reducing costs to the consumer, providing consistent agent licensing standards and continuing education requirements.”

But, in a statement issued as the panel began the hearing, Jeffrey J. Taggart, president of NAIFA, said the trade group remains “open to considering any and all regulatory options that will allow our members to better serve their clients.”

As a result, he said, the NAIFA policy embraces federal initiatives to improve the regulation of insurance. “Simply put, NAIFA favors reform, improvement and progress over the status quo,” he concluded.

Any regulatory structure “that is responsive to the increasingly mobile and fast paced marketplace in which our members do business” would be supported by NAIFA, Taggart said.

In his testimony, NAILBA’s Fenton said that centralized control of agent status through a national database would provide consumers with a higher level of confidence in those who represent the insurance industry.

Additionally, he said, NAILBA supports federal regulation of insurance that would put the insurance industry on equal standing with other financial services industries.

“Currently, the insurance industry does not have a central office to voice concerns or attempt to improve industry practices/standards in an efficient manner throughout the entire fifty states,” Felton testified. “This centralized system will also provide further protections for the consumer. Fraudulent producers must be prevented from illegal actions against multiple companies and consumers by moving from state to state.

“A national system would be a positive step to deter such occurrences,” Felton said.

In the testimony NAIFA submitted to the committee, it said NAIFA members are “long-time supporters of state regulation and remain steadfastly committed to this tradition.”

At the same time, NAIFA acknowledged “serious deficiencies” in the state insurance regulatory system and added that “reform is critical to protect consumers and ensure a strong and healthy insurance marketplace.”

For example, NAIFA said, “Even the life insurance compact, which is an undisputed success for the states, has only been enacted in 30 states to date, and the likelihood that it will be enacted in all 50 states is very slim.”

NAIFA added that while its regulatory reform policy continues “our century-long support for state regulation of insurance and confirms our commitment to improve the state-based system, we believe the status quo of insurance regulation is detrimental to consumers and NAIFA members.

“Thus, our policy acknowledges that all regulatory reform options are on the table and that NAIFA is willing to consider a breadth of alternatives in our desire to fix the problems confronting us,” NAIFA said.

The industry’s apparent conflicts on the efficacy of an OFC stands in stark contrast to the feelings of Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee.

In comments at a property-casualty insurance trade group meeting in Boston, Frank said passage of an OFC bill is far more likely for life insurance, citing the united support of that side of the business.

“That is not the case with the property-casualty sector,” he added.

Robert Hunter, director of insurance for the Consumer Federation of America, said, for example, that the markets for low value life insurance and industrial life insurance “are characterized by overpriced and inappropriately sold policies and a lack of competition.

“With some exceptions, states have not enacted standards that ensure value or provide timely, accurate disclosure. Consumers continue to pay far too much for very little coverage,” Hunter said.

He also contended that insurers have “stymied” proposals for effective disclosure of life insurance policies, including rate-of-return disclosure, “which would give consumers a simple way to determine the value of a cash value policy.”

Today, Hunter said, “even insurance experts can’t determine which policy is better without running the underlying information through a computer.”

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