IIABA Backs Pragmatic Reform Plan to House Panel

Independent Insurance Agents & Brokers of America (IIABA) President Thomas B. Ahart presented a “pragmatic, middle-ground” reform proposal that advocates the adoption of federal legislative tools to foster a more uniform, streamlined and efficient insurance regulatory system at a hearing June 18.

Ahart testified at the hearing conducted by the House Financial Services Committee’s Subcommittee on Capital Markets, Insurance and Government Sponsored Entities, chaired by Rep. Richard Baker (R-La.).

“By using federal legislative action to overcome structural impediments to reform, we can improve rather than replace the state-based system and promote a more efficient and effective regulatory framework,” Ahart testified. “IIABA believes reforms are necessary and essential, but we shouldn’t throw the baby out with the bath water. “This national treatment approach offers the best of all worlds,” he explained. “It promotes the establishment of more uniform standards and streamlined procedures, protects consumers while enhancing marketplace responsiveness, and emphasizes that the primary goals of insurance regulation can best be met by modernizing and reforming, not abandoning, the regulatory system that has been in place for 150 years.

“The current system is proficient at ensuring that insurance consumers receive the insurance coverage they need and that claims are paid. These aspects are working well, and this committee has heard no testimony to the contrary. Federal regulation proposals, however, would displace these well-running policyholder and consumer components of the current regulatory system,” Ahart testified.

Ahart said that a review of testimony received by the committee to date shows that the perceived shortcomings of state regulation fall into two categories-speed-to-market and market-conduct oversight.

Over the last year, IIABA has spearheaded an effort directly with other trade associations, national and regional insurance companies and some insurance regulators to develop a state-based reform proposal. The group has identified areas that must be fixed and how it might be done without displacing the components of the current system that work well and without creating additional layers of government bureaucracy. Ahart offered the following insights on the primary areas of the plan advocated by IIABA:

To speed up introduction of new insurance products nationwide, IIABA’s plan would enable insurance companies to use new policy forms no later than 30 days after they have been filed with state insurance departments unless expressly disapproved within that time frame. “This provision would have the effect of trimming the introduction of new insurance products nationally from two years to a month or less. This puts insurance companies on par with other financial services providers,” said Ahart.

As for rate approvals, the IIABA plan would preempt any regulatory review requirement for rates in competitive markets that requires more than the filing of the rates with the insurance department. States, however, could still regulate rates in “non-competitive markets.” “Rate approval is treated much differently because the competitive market is its most efficient and effective regulator,” testified the IIABA spokesman.

To engender “meaningful licensing reform that is national in scope,” the IIABA plan would mandate licensing reciprocity in all states and preempt countersignature laws and similar protectionist barriers. “These reforms could be accomplished by prohibiting states from imposing any licensure requirement on an agent or broker other than submission of proof of licensure in their home state and the requisite fee,” said Ahart. “The creation by the National Association of Insurance Commissioners (NAIC) of uniform standards in important areas of licensing would close any loopholes that could promote a ‘race to the bottom’ to states with lenient licensing requirements.”

To remove duplicative and inconsistent requirements and examination procedures while maintaining protection for policyholders and the public, the proposal for companies would preempt the ability of states to impose state-specific licensing, transaction review, corporate governance or similar requirements on any non-resident company that is licensed by a state accredited by the NAIC. “An insurer would be able to select as its ‘home state’ either its state of domicile or its state of incorporation,” Ahart told the panel. “States still would be free to require non-resident companies to be licensed but only upon proof of home-state licensure and the submission of a fee.”

Finally, in the area of market conduct examinations, the IIABA proposal would require that a non-resident state examination may be conducted only to review compliance with properly promulgated, state-specific statutory and regulatory requirements, and that no insurer can be deemed to “fail” an examination unless it is provided an explanation of the statutory and/or regulatory requirement violation.

In closing, Ahart offered these guiding principles to the panel: “We propose that two overarching principles should guide your efforts. First, Congress should attempt to fix only those components of the regulatory system that are broken; modernization is clearly needed. Second, no actions should be taken that in any way jeopardize the protection of consumers, the fundamental objective of insurance regulation.”

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