NAIC, Regs Need To Act Before CongressionalThreats

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Its getting to be a familiar refrain. The 50 states and theDistrict of Columbia develop confusing, overlapping and inefficientprocedures for performing certain core regulatory functions.

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Insurance companies complain about the lack of uniformity andunnecessary expenses in the system. The states and the NationalAssociation of Insurance Commissioners promise to try and dosomething about it, but despite sincere efforts, any improvementsare marginal, at best.

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Then, Congress gets into the picture. The Committee withjurisdiction over insurance holds a hearing during which Committeeleaders threaten to introduce legislation unless the systemimproves.

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In response to either the threat of legislation or the actualpassage of legislation, some improvements are finally made. Butthis entire process takes several years, and the improvements areonly sufficient to reduce the heat from Congress for a few years orso.

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There has to be a better way. The states and the NAIC need tofind some mechanism that will allow them to respond more quickly tochanges in the marketplace and achieve the necessary regulatoryreforms without the constant badgering from Congress.

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Failure to do so could lead to a more active and direct federalrole in insurance regulation which many in the regulatory communityand the industry will not like.

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The most recent issue to come before Congress was marketconduct. The U.S. General Accounting Office released a study duringa House Financial Services Subcommittee hearing saying that stateregulation of market conduct lacks effectiveness.

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While NAIC is trying to improve the system, GAO said, NAIC andthe states have not yet agreed upon appropriate laws, regulations,processes and resource requirements that will support the goal ofan effective, uniform market oversight program.

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One gets a sense of d?j? vu when reading the GAO report. Similarcomplaints were raised in the early days of Rep. John D. Dingellsinvestigation of insurance company solvency in the late 1980s.

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Ultimately, NAIC responded with its solvency accreditationprogram to upgrade solvency regulation and stave off federalgovernment legislation.

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Complaints about a lack of uniformity in producer licensing alsoled to the threat in the Gramm-Leach-Bliley Act to create aNational Association of Registered Agents and Brokers unless statestook steps to harmonize their licensing requirements.

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Again, despite discussions of producer licensing reform that hadbeen going on, literally, for decades, only the threat of federalintervention produced results.

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On market conduct, the National Conference of InsuranceLegislators is responding to the latest challenge by developing aself-policing program to upgrade and streamline compliance.

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It is a good idea and, when fully developed, may become thebackbone of a modern, national regulatory system. But as always,the trick is to get it implemented in every jurisdiction. It cantbe allowed to die on the vine like so many model laws developed byNAIC.

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With increasing Congressional scrutiny on core regulatoryissues, and growing dissatisfaction at the pace of regulatoryreform within the industry, the future of the state regulatorysystem is at stake.


Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, May 26, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved. Copyright in this article as anindependent work may be held by the author.


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