NAIC Compact Creates Control Concerns

The meeting also saw legislators putting pointed questions to insurance industry representatives who attended about their support for state regulation.

Speaking to the commissioners the lawmakers offered some blunt assessments of the kind of questions they were likely to face when they go to state houses.

A draft of the compact under discussion was released by the NAIC on May 14 and then amended to include long-term care products last week.

State Sen. William Larkin, R-New Windsor, N.Y., said a provision that includes the six largest states with 40 percent of premium volume on a management body of 12 states could cause "infighting." Other states would misunderstand it to mean that "the six large states count and the rest of you follow. It needs more flexibility," he said.

NAIC President Terri Vaughan, Iowa's insurance commissioner, said several states had indicated they tend to act independently and would need more say to feel comfortable with the compact approach.

Long-term care was the focus of another question from Rep. Frank Wald, R-Dickinson, N.D. Mr. Wald asked if the compact commission approves the long term care product, if "we have to like it hook, line and sinker or reject the whole ball of wax?"

In an interview with National Underwriter, Mr. Wald said that if the commission had power over local North Dakota measures, he could not support it. Two ideologies are clashing here, he said: keeping certain local "nuances" in place and encouraging streamlining so that products can be brought to market for consumers.

Ms. Vaughan responded that that would be the case, explaining that it is necessary to get away from deviations. "If we head down that road, our feeling is that we will have the same problem that we have today and we won't get to national standards."

When asked about funding the compact commission, Ms. Vaughan said that it might need an initial loan from the NAIC.

Rep. Terry Parke, R- Schaumburg, Ill., asked how fast the compact could be up and running. Ms. Vaughan told legislators it was the hope to have it adopted by NAIC in September and in the state legislatures in January 2003.

She said that in two-and-a-half years, a producer licensing model had been enacted in 45 states. However, Ms. Vaughan said there were two caveats: it had not been adopted uniformly and there was pressure under requirements of the Gramm-Leach-Bliley Act of 1999 to accomplish the goal or relinquish authority to federal regulators.

Legislators also directed some prickly questions to life insurers about their true commitment to state-based regulation rather than an optional federal charter approach. They expressed skepticism over the likelihood that state revenue from premium taxes would not be impacted by an optional federal system.

The lawmakers pointedly asked insurers' representatives at the session the degree of their support for state regulation. "Will you support it by backing off the federal charter option?" asked Rep. Kathleen Keenan, D-St. Albans, Vt.

Patricia Parachini, senior director, state relations, responded that the American Council of Life Insurers was committed to continuing to explore both a state and optional federal charter approach. State Sen. Kemp Hannon, R-Westbury, N.Y., responded, "I can't tell you that it will meet with a great reception from state legislators."

North Dakota's Mr. Wald noted, "Premium tax is a sizeable chunk of the state budget. I don't want to see that go away."

Responding to assertions that the ACLI's optional federal charter would not redirect premium tax revenue from the states, Mr. Larkin of New York added, it would represent a loss of $925 million and probably over $1 billion in Texas.

But legislators and North Dakota Insurance Commissioner Jim Poolman said that if there are multi-billion dollar totals involved, the federal government is going to want at least a portion of that to cover the expense of administering an optional federal system.

Property-casualty trade groups that attended the hearing included the Alliance of American Insurers, Downers Grove, Ill.; the American Insurance Association, Washington; the National Association of Independent Insurers, Des Plaines, Ill.; and the National Association of Mutual Insurance Companies, Indianapolis.

Mark Skinner, vice president for state programs with the AIA, said that the compact approach would not meet the needs of the property-casualty industry. Rather, according to Mr. Skinner, the legislators group should consider speed-to-market reforms and personal lines modernization embodied in a model developed by the National Conference of Insurance Legislators, Albany.

What is needed, according to Roger Schmelzer, vice president, regulatory affairs with NAMIC, is "ease of market entry based on competition."

In testimony, Laura Kotelman, NAII counsel, noted that NAII was "skeptical" that state legislatures and state insurance regulators will be willing to cede authority to an interstate compact and will not "cure the threat of federal regulation."