MGA, TPA Model Laws Under Debate
Chicago
Although the passage of model managing general agent legislation might not occur until next March, a third-party administrator model act made it to the next level of review by state insurance regulators.
The Agent Licensing Working Group of the National Association of Insurance Commissioners Market Conduct and Consumer Affairs (D) Committee succeeded in adopting the TPA model law by refusing to be sidetracked by peripheral issues.
One such issue was raised by Pat A. Borowski, division vice president, industry affairs, at the National Association of Professional Insurance Agents in Alexandria, Va. She explained that, because of federal tax requirements, professional associations are often "forced to form downstream for-profit subsidiaries" that perform certain services traditionally provided to association members, such as administration of group benefit programs.
In the performance of such a service, the downstream entities can engage in activities such as the collection of premiums "in lock-box situations," the taking of claims, the granting of initial approvals of medication cards and some limited underwriting activities, noted Ms. Borowski. She indicated that these entities are sometimes identified as TPAs by insurance department market conduct examiners, who then inform insurance carriers that those entities must obtain TPA licensing.
Ms. Borowski asked the working group to consider delaying its adoption of the TPA model act until it could consider a report explaining why certain provisions in the proposal were problematic for professional associations and their insurers. However, the working group was willing only to entertain any white paper submitted by Ms. Borowski, without agreeing to any delay.
Although working group Co-Chair Eugene Reed Jr., director of licensing and consumer services at the Delaware Insurance Department, hoped for a final vote on model MGA legislation, this was derailed primarily by issues relating to bond requirements.
Mr. Reed sought a consensus vote on certain language hammered out in a Nov. 27 conference call. The language would require MGAs to maintain a surety bond for each insurer they represent. The bonds would be for the benefit of the insurance regulator of the home state and of any additional state in which the MGA is authorized to conduct business.
James A. Roe, a past president of the Kansas City, Mo.-based American Association of Managing General Agents, testified that every one of its insurance company contracts requires MGAs to provide financial statements to carriers every year. The contracts include hold-harmless clauses that kick in if there is any fraud, according to Mr. Roe, president of Arlington/Roe & Company in Indianapolis.
Several working group members questioned the need for a bonding requirement in the model act, while other regulators were hesitant about relying on language in insurer-MGA contracts.
Several interested parties also asked the working group to include a definition of an MGA in the model act. In response, Mr. Reed invited industry groups to submit a proposed definition.
On the issue of retail producer licensing, "37 states and counting" have enacted legislative reforms on uniform or reciprocal licensing measures in response to the mandate of the federal Gramm-Leach-Bliley Financial Services Modernization Act, according to Larry E. Kibbee, vice president and director of public affairs at the Alliance of American Insurers in Downers Grove, Ill. He indicated that the vast majority of those jurisdictions have adopted either in whole or in part the NAICs Producer Licensing Model Act.
Georgia, Montana, Texas and Washington last year passed producer licensing laws that addressed only reciprocity issues. "We may want to revisit some of those states to see if they can add some of the uniform provisions of the model act later on," Mr. Kibbee suggested.
Next, he noted that Massachusetts, Michigan, New York, Ohio and Pennsylvania "currently have legislation in play." Although only a few weeks remain in the calendar year, Mr. Kibbee reported that several of those state legislatures are still trying to push through reform legislation.
There appears to be no activity on agent licensing reform in California, Colorado, Florida, South Carolina, Tennessee, Vermont and West Virginia, Mr. Kibbee stated. However, he reported that the Tennessee insurance department has expressed its commitment to introducing a bill in the legislature in the coming session that is based on the model act. The Alliance will assist the department with this legislation, he said.
Sam A. Meyer, assistant director and supervisor of producer licensing at the South Dakota insurance division and co-chair of the working group, announced that once the group completes its work on the TPA and MGA model acts, it will proceed to rewrite the model law on adjuster licensing. This will occur under the leadership of Mr. Reed, he said.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, December 17, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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