CIAB Fights Protectionism

But there are some vestiges of protectionism that seemingly wont go away. First and foremost is the anachronistic Florida countersignature statute.

Florida statutes require that licensed local agents who are state residents must countersign policies for property, casualty and surety insurance for an out-of-state resident. Just being licensed to do business in Florida is not enough.

Unless a broker actually resides in Florida, he or she must find a resident agent to affix a "signature" to any policy that is soldand pay the resident agent 50 percent of the commission to boot.

Lets be clear about this later point. That's 50 percent of the commission regardless of whether that resident broker did anything at all to negotiate or sell the policy or provide any service, before or after, to the customer.

Clearly, since no work whatsoever is required and no effort whatsoever is expended, this countersignature requirement has nothing to do with consumer protection, as its protectors among agents and Florida regulators contend. Its an attempt to get revenue for Florida insurance agents, and make it more difficult for out-of-state agencies and brokerages to compete. Period.

Perhaps there was some defensible rationale for a countersignature law 50 years ago, when the insurance business was pretty much a local affair. But the huge majority of the business, particularly commercial insurance, is transacted today on a national, if not international, basis. We regularly preach to our trading partners that they should open up their markets for American goods and services, yet we continue to countenance barriers to domestic interstate business.

A recent study by The Councils Foundation for Agency Management Excellence (FAME) makes it clear that the insurance is no longer a local business.

Only one-fifth of the property-casualty premiums in each state, and about 12 percent of health and life premiums, are written by companies that are domiciled in that state. In terms of actual numbers of companies, the FAME study said there are 16 "outside" companies operating in a given state for every domestic company in the p-c field. That ratio soars to 30-to-1 for companies writing life and health lines.

In Florida, not only has the state not repealed its countersignature restriction, but it is vigorously defending it in U.S. District Court for the Northern District of Florida, where The Council has sued to stop the enforcement of the provision.

We have filed a similar suit in Nevada, where a similar countersignature law remains on the books. The Nevada law calls for fee-sharing based on premiums, not commissions, and so may be more or less egregious depending on the transaction. But the Florida market is far larger and thus far more important.

Our argument in these lawsuits is that the provisions are unconstitutional because they give resident agents an unfair competitive advantage over similarly situated individuals who do not reside in the states of Florida and Nevada.

Oral arguments are now being heard in the Florida case, with a decision expected probably before the summer. Regardless of the legal outcome of this challenge, it is our belief that the countersignature law is ultimately going the way of the buggy-whip. Florida agents and brokers are no less sophisticated than anywhere else in the country.

The National Association of Insurance Commissioners is making a serious attempt to keep up the momentum of NARAB, and Congress is considering additional legislation to step up the heat. With about 35 states now reciprocal, at a certain point the pendulum is going to swing. The advantages of being in an isolated and protectionist state are going to be outweighed by the benefits of gaining reciprocity with scores of other jurisdictions. Reciprocity is not a one-way street.

In these economic times, having to resort to lawsuits and congressional intervention to bring down barriers to free trade is no way to run a railroad. As the country struggles to regain its economic footing, it cannot afford to place hurdles in front of the industries that keep the American economy going.

The sharp edges of the hard market conditions are already provoking significant scrutiny from consumer groups and policymakers. Can industry groups credibly stand up to the scrutiny of appropriately representing consumers, while turning a blind eye to protectionism?

Insurance is an international business, and the state regulatory system struggles to regulate multinational companies with business operations all over the world. Insurance does not stay in one place. The whole concept behind spreading risk implies it be spread as far as it can be, both nationally and internationally. Regulation must be crafted with that reality in mind.

Before the big-picture issues of regulation can be fully streamlined, throwback relics such as Floridas countersignature law need to go–and the quicker the better. Our experience tells us never to underestimate how long quirky and parochial insurance laws can stay on the books, but we are increasingly confident this one will go, either through litigation or ultimately through legislation. The next step, though, is for industry groups and national regulators–who have been formally opposed to these laws but unwilling to actively fight them–to step up to the plate.

Ken Crerar is president of The Council of Insurance Agents and Brokers. He joined The Council in November 1987.

Reproduced from National Underwriter Edition, February 10, 2003. Copyright 2003 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.