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Regulation and Compliance > Federal Regulation

Mutual Respect Is Essential

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Thirty-eight years ago I attended my first board meeting of the National Association of Life Underwriters (now the National Association of Insurance and Financial Advisors) as a newly elected trustee. The principal item on the agenda was a presentation by a top official of Metropolitan Life regarding a proposal to substitute federal regulation for state regulation. The presenter lifted up the advantages of the proposal from the company perspective, but did not address the effect the proposal would have on marketing, the primary concern of agents.

The NALU board respectfully declined to lend support unless assurance could be given that anti-rebating and replacement regulations would be left in place. It was pointed out that NALU was created to help bring order to the marketing of life insurance and that continues to be its primary mission.

Some time later a group of large companies formed a task force with its own acronym to seek the right of a federal charter. The task force was chaired by Raymond Johnson, vice chairman of New York Life. In correspondence to me (a NYLIC agent and NALU board member) Ray expressed the hope that NALU would be able to support the proposal. Ray came to a leadership position from the field, and when the agents’ objections were related to him, he understood the problem. I have always respected his tolerance of our point of view and the fact that there was never any pressure applied, or even a hint of intimidation from the company to support the proposal.

Over the 23 years of my affiliation with the NALU/NAIFA board, this issue in various forms resurfaced periodically. But the proposals were always limited to company concerns, with little or no attention given to agent concerns. However, it was not the lack of support by agents that caused each of the proposals to die. The main problem has always been that the proponents of federal regulation were for the most part domiciled in 5 or 6 states, whereas the opponents were smaller companies residing in 30 or 40 states.

I believe this issue has a striking parallel to the fate of the once popular fair trade laws. Perhaps an excerpt from the Columbia Encyclopedia, sixth edition, on the subject of fair-trade laws will help illuminate agent concerns over federal regulation:

“Fair-trade laws, a former group of statutes that permitted manufacturers to specify the minimum retail price of a commodity. The first fair-trade law was adopted (1931) by California. Intended to protect independent retailers from price-cutting competition of large chain stores, such were originally nullified by the courts, which found most fair-trade rules in violation of the Sherman Antitrust Act. As a result, Congress passed (1937) the Miller-Tydings Act in order to exempt fair-trade from antitrust legislation. In 1975 federal legislation eliminated the remaining fair-trade laws.”

With state regulation our antitrust exemption continues to apply. In all of the company pronouncements, I have yet to hear how they will be able to protect our exemption.

From my own experience I know that it is always painful when agents and companies have to go their separate ways on legislation. Experience has taught us that things go better when we are together. We have also been told on more than one occasion that using the committee hearings of Congress or the legislature as a battleground to settle our differences is a no-win strategy.

We have a great track record of cooperation in the legislative arena, but it was always based upon mutual respect of each other’s position and not by coercion or intimidation.

For example, I recall the crisis that occurred in the 1980s when interest rates spiked to over 20%. The companies had billions of dollars subject to call by policy loans at 5% and 6%. To remedy the situation the companies proposed substituting variable interest rates on policy loans for the current fixed rates. The fixed rates were an important sales tool and at first agents were opposed to the change. But thanks to a great educational effort by Northwestern Mutual with its own agents, and a team effort of Tom Sutton of Pacific Life, Harry Hohn, then general counsel of New York Life, Bill Regan of AALU and Kirke Lewis, president of NALU, we were able to get everyone on board. A major train wreck in the industry was thus avoided.

This level of cooperation has been repeated many times–the assault on annuity taxation, the DAC tax proposal–just to mention a couple. But cooperation must consider the interest of all parties. Or, as one company CEO put it in the heat of one of these battles, “You are not going to burn my house down to save the village.”

Until the legitimate concerns of agents are laid to rest, I do not believe the companies and their organizations have a right to expect cooperation on federal charters. Burning down the agents house will not only not save the village, but the fire will probably spread. With the Treasury Department proposing sweeping changes in the regulation of financial services it is a time to be wary and together.