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Interstate Compact Is Here, But Not Speed Of New Product Availability

By Jeffrey V. Kulesus

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While excitement about speed-to-market initiatives like the interstate compact and federal charter continues to build, many insurers have seen little or no change in the speed of new-product availability. What’s happening and why?

One of the most anticipated speed-to-market initiatives is the interstate insurance compact. Started in June 2006, the Interstate Insurance Product Regulation Commission worked with state insurance regulators and the industry to create 48 uniform standards. So far, 32 have been adopted.

In an ideal world, the compact allows a company to file a single submission and get it approved in all 31 participating compact states. Those states represent half of all total U.S. premium volume.

Turnaround time for compact approvals should be 60 days, but actually averages about 38 days. As great as this may sound, so far only 22 of nearly 1,000 North American life insurance companies have registered with the compact.

Registration involves paying a $5,000-per-company annual fee, another $500 fee for each compact filing, the usual state filing and retaliatory fees, and System for Electronic Rates and Form Filing (SERFF) submission fees. Compact filings must be made electronically via SERFF.

Since the compact started accepting filings in July 2007, 48 individual life products have been filed; most are universal life products.

Why the “ho-hum” when it comes to industry compact involvement?

Two main issues now impact the industry’s compact involvement: the number of adopted compact standards and “mix and match.”

The compact cannot accept a form submission for which standards are not yet available. In other words, if a company has an innovative new product design not yet supported by a standard, the product cannot be filed with the compact. For this reason, many insurers are waiting until more product standards are eventually adopted for annuity, disability, return of premium, long-term care, group and discretionary group, and other products.

The other factor, “mix and match,” happens when a company wants to use forms previously approved by a state with compact-approved forms.

Once a company files a compact form, it has 2 years to file associated forms such as amendments, applications, riders and other forms to use with the previously approved compact form. The 2-year mix-and-match clock starts ticking when the compact standards are approved for each associated form. If the associated forms have not been compact-approved after the 2-year period, the previously approved state forms can no longer be used with the compact-approved form.

A related wrinkle, “reverse mix and match,” happens when compact filings are made at the same time as related state form filings.

No doubt industry use of the interstate compact will accelerate as more compact standards are adopted and issues regarding mix and match are resolved.

In the meantime, producers should keep in mind that there is indeed light at the end of the tunnel for new product availability and current speed-to-market initiatives.

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