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Regulation and Compliance > State Regulation

Hearing Looms, GAO Finds Gaps

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The U.S. Government Accountability Office has prepared a state insurance regulatory system critique for a congressional subcommittee that is about to consider federal insurance oversight.

Despite efforts to make the state producer licensing, product approval and market conduct processes more similar, big differences remain, and some of those differences, such as differences in producer background check standards, can cause problems, GAO officials write in the report.

“Without full checks on applicants, states may less effectively protect consumers,” officials warn.

A team led by Orice Williams, a GAO director, prepared the report for Rep. Paul Kanjorski, D-Pa., chairman of the House Financial Services Committee’s capital markets subcommittee; Rep. Scott Garrett, the highest-ranking Republican on the capital markets subcommittee, and Rep. Spencer Bachus, R-Ala., the highest-ranking Republican on the House Financial Services Committee.

The subcommittee today scheduled a May 14 hearing with the title, “How Should The Federal Government Oversee Insurance?”

“Licensing standards, including how state regulators define lines of insurance, also vary across states, further hindering efforts to create reciprocity in agent licensing,” GAO officials write in their report. “These differences may result in inefficiencies that raise costs for insurers and consumers.”

As Congress considers proposals for changing regulation of the insurance industry, it should try to ensure that all states and jurisdictions include nationwide criminal background checks in their producer-licensing and consumer-protection operations, officials write.

A working group at the National Association of Insurance Commissioners, Kansas City, Mo., found that, as of March 2009, only 17 states were performing full criminal history checks using fingerprinting, GAO officials write.

Some states that do perform full criminal history checks have been unwilling to reciprocate with states that do not, and “some insurance regulators in our sample noted that regulators do not have a systematic way to access disciplinary records of other financial regulators,” officials write.

The GAO officials also recommend that the NAIC and state insurance regulators work with the insurance industry to identify state product approval differences and improve how consistently state regulators review product filings once the filings are received through the NAIC’s System for Electronic Rate and Form Filing.

State insurance regulators have become more efficient at reviewing product filings, but barriers to greater reciprocity and uniformity persist, GAO officials write.

In 1998, GAO officials write, the NAIC and state regulators improved the product filing process by creating the System for Electronic Rate and Form Filing.

SERFF has simplified the filing process and reduced filing errors, but it does not reduce the size of the differences between regulators’ review and approval processes, GAO officials write.

The GAO officials note that nearly three dozen states and other jurisdictions now participate in the Interstate Insurance Product Regulation Compact, an entity created in 2006 to accelerate the review process for some life, annuity, disability income, and long term care insurance products.

The Interstate Insurance Product Regulation Commission, the entity that takes in filings for the jurisdictions in the Compact, does set product standards.

“However, the Compact leaves some decisions on approval up to the individual states, and several key states have not joined because they feel their processes and protections are superior to the Compact’s,” officials write. “Moreover, differences in state laws are likely to limit reciprocity in the approval of property-casualty insurance products.”

A copy of the report is available here.


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