ACLI Finds Same State Regulatory Problems More Than a Decade Later

The American Council of Life Insurers (ACLI) said that progress has been slow in making the state regulatory system uniform across all jurisdictions and that the areas of state regulation that were problematic when the trade association did a benchmark study about 12 years ago remain today, despite global economic forces that should have spurred regulatory change. 

The ACLI also presented a follow-up survey of state insurance regulation in its remarks Dec. 13 to the Federal Insurance Office (FIO) of the U.S. Treasury as part of a process FIO is undertaking to get input on improving and modernizing insurance regulation under the Dodd-Frank Act. 

Comments are due Dec. 16 and most are expected late this week. See more here.

However, of 19 emerging issues, companies express the greatest concern over expanding federal regulation of insurance. Specifically, “two issues rated as important and in need of improvement in 2000 were similarly rated in 2011: policy/contract form approval and market conduct examinations,” according to the study, noting that expertise/capacity is the primary reason securities valuation is rated poorly. Many areas were found seriously wanting since the 1999 study, but statutory accounting still found its way into the hearts of more than half the CEOs.

To add to the depth of its assessments, the ACLI said a new CEO task force is now analyzing the industry’s policy position on regulatory reform, and reviewing the survey results and factoring in the implications of global regulatory issues as well as those resulting from the passage of the Dodd-Frank financial regulatory reform, it told the FIO.

However, the trade group said it was not in a position to offer specific federal legislative suggestions for implementing improvements to the insurance regulatory system to the FIO at this time. It stood by its established policy position on regulatory reform, from 2000, which calls for a two-track approach to the issue, with one track focusing on improvements to our state-based system and the second track calling for the implementation of an optional federal charter. 

Although the state-based regulatory system has served the industry well over “withstood the recent financial crisis admirably,” it hasn’t kept pace with the changing times marked by with the advent of Solvency II, the emerging role of the IAIS and efforts to address institutional oversight on a multinational basis, Dodd-Frank and its implementation and G-20 and Financial Stability Board (FSB) regulatory reform measures, according to the ACLI. 

In its filing, written by ACLI General Counsel Gary Hughes and addressed to FIO Director Michael T. McRaith, the ACLI went on to note that “…in many areas of regulation a lack of uniformity from state to state persists both in terms of the laws and regulations themselves and in terms of their interpretation and enforcement. This lack of uniformity is a major impediment to an efficient and cost-effective regulatory system.” 

With regard to regulatory creep, “companies are concerned that existing federal oversight by the Treasury, Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA) and Department of Labor (DOL), added to new oversight imposed by implementation of Dodd-Frank rules and regulations by various federal agencies, combined with existing state regulations, is making the life insurance regulatory regime increasingly complex, fragmented and difficult to coordinate.”