National Insurance Regulation?

In case you have been out of touch with the news for a while, you should know that there is a move afoot to establish a National Insurance Regulatory body to provide more uniformity in insurance laws and practices nationwide. So far it is not clear whether there are any specific areas of insurance that are being targeted for inclusion in this national umbrella, but just in case it could swallow up the life, health, and annuity side of the business, I suggest you become aware of the details sooner, rather than later.

The way this proposal is being presented in Congress is to allow individual insurers to choose to either be become subject to this new federal charter concept, or remain under state regulation. If you think the insurance companies are going to jump to the defense of our current state regulatory system, then think again. Consider that when an insurance company wants to offer a new product nationwide, they must go though a series of product approvals. These include the design and details of the product, the forms and marketing materials, the contract language, and the pricing structure. But if a company wants to offer their new product in every state, they must currently go through this process fifty different times. Each time they must respond to the specific changes required by each state for approval, resulting in minor variations in the same product from state to state, depending upon that state’s conditions. This means that the company must produce specific materials for that product suited for each state, and keep up with this as it disseminates literature and forms to a nationwide sales force.

The NAIC has finally decided to tackle this problem area for insurers and formed an interstate compact, to date including about 27 states, so that insurers can make one submission but get approval in all states which are members of this compact. If the compact is able to finally get the cooperation of ALL state insurance departments, then this would effectively eliminate this problem for insurance carriers, and remove one of their reasons for supporting a national charter system.

But other concerns are for the complications our state system causes for consumers, who find that the same product by the same company may not be the same from one state to the next. This issue arises more often in the property and casualty side of the insurance business, where people moving from state to state are confronted with the impact of these differences in very real life scenarios. But other areas of insurance, like Long Term Care Insurance, can feature quite different levels of benefits from one state to the next, and with a senior population that is prone to uproot and move to warmer climates, keeping up with the differences in coverages offered in the home state versus the retirement state, could become an issue we hear more about.

Today, there are hearings taking place where proponents of each side of this issue, as well as a consumer advocate, will present testimony before the Senate Banking Committee, the organizing entity that is looking into overseeing this major change in the familiar way we have come to assume would always be how insurance would be regulated.

If you are an agent, you may not yet know how to react to the possibility of such drastic change. Quite frankly, I am not sure how it would affect agents either, with the little details that have come forth so far. But change can go both ways, and if you realize that with the attacks by the NASD against the regulatory authority of the states regarding indexed annuities, then you have to assume that the potential for a more stringent control of agent activities would be one of the probable outcomes. Not that our own state departments are not doing their job, but on a national scale, it seems that the only way to effectively regulate such a large group of agents is to intensify the regulation and control, and stiffen penalties for infractions.

If you have opinions about this issue, I suggest you voice them to your Congressional representatives, professional organizations, and your state insurance department. If you don’t mind waking up one day and finding that everything has suddenly changed, keep silent and keep going about your daily business as if nothing is going to happen. I am not sure how all this will play out, but I can tell you that I would be greatly surprised if we did not start to see many adjustments in the regulation of our business in the coming years. For me, I want to be part of the voice that guides and direct how this all evolves, rather than just a follower who is destined to deal with the crumbs of whatever is left.