Treasury Plan Proposes OFC

An OFC would be issued to specify the lines of insurance that each national insurer would be permitted to sell, solicit, negotiate and underwrite. For example, the report said, an OFC for life insurance could also include annuities, disability income insurance and long term care insurance.

However, the report said, “since the nature of the business of life insurers is very different from that of property and casualty insurers, no OFC would authorize an insurer to hold a license as both a life insurer and a property and casualty insurer.”

But, the Treasury official cautioned in the media briefing, the document is “aspirational,” in other words, what the Department hopes to see evolve in financial regulation over a period of time. “It will be a long, tortuous process,” the official said.

He also noted that Treasury believes that if an OFC is established, it will become most attractive to large, multinational insurance companies, whether based in the U.S. or outside the continental U.S.

In explaining the Treasury blueprint, the Treasury official cautioned that one overall theme is to ensure that consumer protection is consistent. “Consumers should be treated the same when they are buying similar products.” He cited as an example mutual funds and annuities as similar products, which over time, should be regulated uniformly in terms of consumer protection.

The blueprint also talks specifically about the problems states have in ensuring consumer protection, which officials of the National Association of Insurance Commissioners cite as their strong suit in arguing against federal oversight of insurers.

“Even though the NAIC’s accreditation program has succeeded in making solvency regulation somewhat more uniform and effective,” the blueprint explains, “achieving uniformity in other state regulatory functions, such as in the areas of consumer protection or market regulation, has failed.”

Specifically, it said these areas of concern “include regulation focusing on insurer practices, independent of solvency concerns, which might be detrimental to policyholders, such as deceptive advertising, unfair policy terms, or discriminatory or unfair treatment.”

Talking about what happens when an insurance company becomes insolvent, the blueprint cites with concern the fact that although all states have instituted guaranty funds to pay unearned premiums and the balance on outstanding claims often up to statutory limits, if any. “Yet, these payments are not uniform and can vary by state, type of insurance and net worth of the policyholder,” the blueprint says. “The funding for those claim payments derives from the guaranty funds’ assessments upon the licensed insurers in those states.”

It notes that each state has its own laws establishing separate guaranty funds for life and health insurance and for property and casualty insurance for specified lines of business written by licensed insurers.

Regarding licensing of producers, the blueprint notes creation of the National Association of Registered Agents and Brokers pursuant to the 1999 Gramm-Leach-Bliley law, and notes that although unable to meet the uniform test, 26 states, a majority, adopted the necessary laws and reciprocity arrangements to meet the “reciprocity” test, thus preventing the triggering of NARAB. “Since successfully preventing the triggering of NARAB by meeting the reciprocity statutory requirement, states have failed to achieve uniformity in licensing standards,” the report states.

The blueprint also notes that 7 categories of state policy form systems exist in various states. The blueprint also notes that in dealing with forms, the NAIC has attempted to achieve a high degree of uniformity and efficiency in form approval by creating the Coordinated Advertising, Rate and Form Review Authority to provide a centralized review of certain life insurance products based on a set of uniform standards.

“However, states have not used the Review Authority due to the standards being riddled with deviations,” the report said.