The report either affirms state regulation or allows for the hand of the federal government to guide insurance regulation down a smoother path, both for interested parties and for itself in certain areas.
The National Association of Insurance Commissioners (NAIC) president, Jim Donelon of Louisiana, wrote that he was “pleased the Treasury Department continues to embrace the state-based system of insurance regulation.”
Sen. Ben Nelson, NAIC CEO, put it in the same category as other government reports that offer advice by noting that “reports such as this one, as well as other comments provided by consumers, industry and governmental organizations as part of this process are always welcome and are useful tools for assisting regulators in identifying areas that require improvement.”
Members of the NAIC leadership will be meeting in Washington next week with Treasury Secretary Jacob Lew to discuss the FIO role and its report.
“We are glad that the report endorses the passage of producer licensing reform known as the National Association of Registered Agents and Brokers (NARAB) Act,” stated National Association of Insurance and Financial Advisors (NAIFA) President John Nichols, referring to the Act which passed the U.S. House of Representatives in September.
NAIFA also said it agreed that certain state-based marketplace reforms are crucial for consumers, such as all states adopting the NAIC’s Suitability in Annuity Transactions Model Regulation. The alternative of not significantly moving ahead with this and widespread state adoption of other model laws across the states is federal intervention under the FIO report’s scenario.
The FIO report noted that the United States has entered an era of unprecedented levels of retirement age residents — so financial security for the aging population is an essential priority in its discussion of annuities.
As in other areas, the report noted that, in the event that national uniformity is not achieved in the near term, federal action “may become necessary.”
The report says that the state-based insurance product approval processes should be improved by securing the participation of every state in the Interstate Insurance Product Regulation Commission (IIPRC) and by expanding the products subject to approval by the IIPRC.
The FIO report said that state regulators should pursue the development of nationally standardized forms and terms, or an interstate compact, to further streamline and improve the regulation of commercial lines. Likewise, organizations urged states to join the IIPRC so that competitive products can be brought to market faster.
The report, despite the cries of alarm or resistance from bellweather states like New York and California, also cautiously endorsed the NAIC’s and the life insurance industry’s principles-based reserving, if it has the right controls and oversight.
The American Council of Life Insurers (ACLI) straddled the good news/bad news fence by noting that, “The current state-based system of regulation has served consumers and the industry well for generations.” However, as noted in the report, “improvements are needed to promote uniformity and address inefficiencies and burdens for consumers, insurers and the international community.”
“This report paves the way for hearings and serious examination of the deficiencies of the state-based system,” said Kevin McKechnie, ABIA senior vice president.
Rep. Ed Royce (R-Ca.), a supporter of the Optional Federal Charter in the past and whose amendment with a colleague created the statutory requirement for the report, said state insurance regulators have been put on the clock to address the “inefficiencies and burdens for consumers, insurers and the international community” in the current regulatory apparatus… The FIO and Congress must hold states accountable if they again fail to act on the recommendations from the Treasury Department. “