NAIC Cuts Controversial Producer Licensing Model Language

The hotly contested language of Section4(b)8 became a thing of the past on Oct. 4 when the National Association of Insurance Commissioners (NAIC) voted unanimously to delete the section from its Producer Licensing Model Act.

“Because this one issue has been taken off the table, I think what we’ll see now is a lot of states take action to adopt the model and the goal of the NAIC,” said Wesley Bissett, vice president of state government affairs for the Independent Insurance Agents of America (IIAA).

According to the recently enacted Gramm-Leach-Bliley Act (GLBA), if a majority of states and territories (29) do not reach licensing reciprocity by November 2002, the National Association of Registered Agents and Brokers (NARAB), would be created as a self-regulatory, national licensing authority. It is the establishment of such an entity that a large number of insurance industry groups and state policymakers would like to avoid.

“Twenty-nine states have to have licensing reciprocity which means essentially if I’m licensed in one state, I can get licensed in other states without having to fulfill a lot of state specific requirements,” Bissett explained. “Certainly a goal we share is it won’t just be 29 states that take action on this. It’ll be a national effort to get agent licensing reform. The likelihood of achieving national licensing reform is now much greater than it was before.”

A release from the NAIC noted that the changes to the Model Law had been made in light of the fact that 4(b)8 was not necessary to reach the goal of becoming NARAB-compliant and suggested that the section was, in fact, proving to be a detriment to the overall goal of meeting the NARAB deadline. In addition to cutting 4(b)8, the NAIC made an amendment to the act which creates personal lines as a new license type.

The announcement came as especially welcome news to the IIAA, which had long contended that the inclusion of Section 4(b)8 had no relevance to licensing reciprocity or a state becoming NARAB-compliant. Furthermore, the IIAA expressed concerns that the ambiguity of the language of 4(b)8 could inadvertently lead to an environment in which unlicensed individuals would be able to offer advice, make recommendations or sell insurance to some policyholders.

Moving toward compliance

The Model Law has already been adopted in the states of Kentucky, Missouri, New Hampshire and North Carolina. The NAIC stated that in prospective legislative sessions, an additional 31 states are slated to consider the Model Law.

Two of the states which have already adopted the Model Law-Missouri and New Hampshire-only adopted those provisions that were essential in order to prevent NARAB from coming into existence.

On the other hand, prior to its adoption in Kentucky, some changes were made to the Model Law, but most of its provisions were enacted. While 4(b)8 can be found in the New Hampshire law, the legislature of that state made revisions which addressed the scope of licensure question. In particular the changes made in New Hampshire were focused on the exemption section, that which proceeds from licensing.

“What New Hampshire had done was more limiting than what the NAIC [Model] had been originally,” Bissett said, adding that is unclear at this point whether, with the deletion of 4(b)8, New Hampshire would modify its law to make it mirror the NAIC’s most current model.

“The regulators in Kentucky and New Hampshire made it very clear that unlicensed people cannot sell, solicit, offer advice or make recommendations, whether it’s an existing policyholder or a new policyholder,” Bissett added. “In New Hampshire, for example, the regulators said any time you talk about coverages, you have to be licensed under the new bill.”

The next step

Now that controversy over 4(b)8 is a non-issue, Bissett said it is up to the NAIC and other industry groups to work with state policymakers to pass the Producer Licensing Model Act-thus achieving their common goal of reaching the 29-state threshold before the November 2002 deadline. Each state will have to look at its existing statutes, take the model and mesh them together.

This is a process Bissett said is occurring now in most states. “Certainly the politics of the entire debate are made much easier now since the NAIC has deleted 4(b)8,” he said. “At one point we felt like a lone voice in the wilderness, particularly after there had been a letter that was sent by the NAIC that a lot of groups had signed, which at the least sent a subtle message that they were hoping no changes would be made.

“Frankly, we commend the NAIC. They were certainly under a lot of pressure. Maybe they didn’t oppose it at the end of the day, but I think a lot of other groups would have preferred nothing be done. To the NAIC’s credit, they stepped up to the plate and deleted the section.”

Topics Kentucky