OFC 'Rift' Among Agents

More Politics Than Reality

By Arthur D. Postal

Several weeks ago, a public relations firm associated with thelife insurance industry alerted the media to a "growing fight among[insurance] agents" over support for legislation that would createan optional federal charter for life insurers.

The timing of the campaign is linked to the drafting oflegislation by the staff of the House Financial Services Committeethat would establish "federal standards" for state insuranceregulation–a moderate step that has broad support from all areas ofthe insurance industry.

When the life insurance industry's latest campaign for an OFCfor life carriers was launched in June, it was aimed at winningsupport starting in the Senate Banking Committee. But the latesteffort–the so-called "rift" initiative–is designed to climax withintroduction of an amendment to the federal standards billestablishing a federal charter option for life insurers when and ifthe legislation is marked up in the House Financial ServicesCommittee this fall.

Partly, the "rift" effort was organized because the lifeinsurance industry has had difficulty gaining co-sponsors for itsbill in the Senate Banking Committee beyond the original core ofSens. John Sununu, R-N.H., and Tim Johnson, D-S.D.

The "rift" release came from Levick Strategic Communications inWashington, D.C., working on behalf of a group called "Agents ForChange"–created by the Financial Services Roundtable to push for anOFC option for life insurers. Presumably, the release was designedto get the media involved in the initiative by writing articlestalking about a "rift" within the agent community that would givemembers of Congress political cover to support the calls for anOFC.

While the American Council of Life Insurers distanced itselffrom the release, the ACLI, the American Bankers InsuranceAssociation and the Financial Services Roundtable all are involvedin the latest initiative for an OFC for life insurers.

The release targets the Independent Insurance Agents &Brokers of America for particular scorn, charging that "the Big Iis trying to squash this growing movement and maintain the statusquo."

This raises a number of issues.

o First, the IIABA represents the property-casualty industry,not the life side of the business.

o Second, the Big I denies any discord within its ranks over itsfederal lobbying policies. "There is no truth whatsoever to theallegation made by the so-called group 'Agents For Change' thatthere is a rift in the independent insurance agent communityregarding insurance regulatory reform," said Charles Symington,senior vice president of government affairs and federalrelations.

"Big I members overwhelmingly oppose an optional federalcharter. With that said, our membership does support modernizingstate insurance regulation, and that is why we support the SMARTAct being drafted by Reps. Mike Oxley and Richard Baker," he added,referring to the bill that would set federal standards for stateregulation.

o Third, there appear to be few signs of concern over thelobbying policies of the primary life agent group–the NationalAssociation of Insurance and Financial Advisers.

David Woods, CEO of NAIFA, denied the existence of stronggrass-roots support for an OFC for life. "NAIFA is not in thebusiness of picking fights with anybody, and I don't know wherethis idea of a 'rift' came from," he said.

"NAIFA's whole purpose is to bring about regulatory reform thatwill be in the best interests of our members, their clients,prospects and policyholders. That could include any one of thenumber of proposals out there–the interstate compact, the SMARTact, an OFC, or some other proposal that hasn't yet surfaced. Ourposition at the moment is to be aware and study all of them and seewhat develops," he added.

"There is absolutely no rift, and no challenge to ourleadership," declared Mr. Woods. "We are simply studying alloptions."

While denying any "rift" within its ranks, or a wholesaledeparture of members to the so-called "Agents For Change"group–which, the release claims, "now number more than 450 agentsand brokers in 40 states"–Mr. Symington does acknowledge the IIABAbelieves that an OFC for insurance, not specifically life, "wouldbe incredibly onerous for independent insurance agents and brokers,as well as confusing and harmful for insurance consumers."

"As independent agents selling the products of multiplecompanies, our membership could be required to obtain twolicenses–one for state-regulated companies and another forfederally-regulated companies–even if the agent does business in asingle state," he noted

Additionally, Mr. Symington said, "consumers would not know whoto call when they have questions or problems. Envision thisscenario: a consumer could have a federally-regulated insurer fortheir life insurance, a state-regulated insurer for theirhomeowners insurance, a federally-regulated insurer for theirannuity and could have a different state-regulated insurer fortheir auto coverage."

Even the Council of Insurance Agents & Brokers–which hasbeen supporting an OFC even though it has embraced the SMARTapproach of Reps. Oxley and Baker as a good start–acknowledged thatits rival, the IIABA, has legitimate concerns about the licensingissue.

"It is appropriate for agents and brokers to be concerned thatan unintended consequence of OFC legislation could be thatproducers get the worst of both worlds–regulation at both thefederal and 50-state level," said Joel Wood, CIAB's vice presidentfor federal government relations. "Companies could have varyingrequirements for licensure embedded in their agency contracts thatcould create that situation."

As a result, Mr. Wood said, "it is absolutely essential for TheCouncil that any OFC legislation has an iron-clad guarantee that iffederal licensure is optional for insurance companies, it must betruly optional for producers as well. If this condition is not metin any legislation that ever advances on the OFC, we will activelyand loudly oppose it."

The "rift" initiative has fallen flat, reaching highly skepticalears from people in the media familiar with the issue–andreflecting more on its initiators than on its targets–as the ACLIdecision to distance itself from the effort confirms.

But privately, members of Congress and industry lobbyistsbelieve the proposal has legs–perhaps not in this Congress, but inthe next one. Key members of the House Financial Services Committeealready are asking lobbyists for p-c companies if they wouldsupport a life-only charter, and p-c lobbyists believe influentialmembers of Congress are becoming supportive.

The critical hurdle to secure essential p-c industry support issome sort of national standard for relief from state rateregulation. Otherwise, there will be no p-c insurer backing, andthe initiative will languish.

Arthur D. Postal is NU's Washington Editor. He may be reached at[email protected]

"The 'rift' initiative has fallen flat, reaching highlyskeptical ears from people in the media familiar with the issue–andreflecting more on its initiators than on its targets–as the ACLIdecision to distance itself from the effort confirms."

Arthur D. Postal