IIABA Unveils Regulation Plan

Since IIABA is interested in developing a consensus, Mr. Roth said, the language in the draft is still undergoing some tinkering, although he said not much more needs to be done.

There is no timetable for seeking formal introduction of the plan as legislation, he said. That probably will not happen until a consensus is there, Mr. Roth said.

Mr. Roth said that IIABA embarked on this approach because of the current push in some quarters for federal regulation. Agents and companies are concerned with the current market, he said, but many believe that creating a new federal bureaucracy will only make matters worse.

The goal of IIABAs effort, Mr. Roth said, is to streamline insurance regulation and make it more uniform while maintaining the 150-plus years of insurance regulatory expertise on the state level.

Looking first at producer licensing, the IIABA draft language would generally bar a state from requiring a non-resident producer to acquire a local license unless the state adopts uniform licensing standards that will be developed by the Kansas City, Mo.-based National Association of Insurance Commissioners.

Under the draft, NAIC will develop uniform standards covering such issues as synchronized renewal times for licenses and mandatory use of the NAICs producer database for the licensing and background check process.

The NAIC standards would have to be approved by the Treasury Department.

In addition, the draft would bar states from imposing any discriminatory requirements or licensing fees on nonresident producers. These include countersignature laws, requirements as to corporate forms, and bonding or insurance coverage requirements.

Turning to policy forms and rates, the draft would effectively eliminate state regulation of rates, for both commercial and personal lines, so long as the marketplace is competitive (although rating plans would still have to be filed with state regulators).

Rate regulation would be allowed, however, if a state makes a final determination that a particular market is noncompetitive.

That determination must be done according to certain specified procedures, including a notice and hearing. In addition, the determination must be based on several factors. These include the number of insurers actively engaged in providing coverage; measures of market concentration and changes of concentration over time; ease of entry and the existence of financial or economic barriers that could prevent new firms from entering the market; whether the total number of companies writing the line of insurance is sufficient to provide multiple options; the availability of pricing and other consumer information; and any other relevant factors.

If a state makes a final ruling that a market is not competitive, the action could be challenged in federal court.

As for policy forms, the draft would generally require states to disapprove a form within 30 days of filing, subject to one extension of 15 days to obtain additional information. If a form is not disapproved, in writing, in that time period, the insurance company would be allowed to use it.

Turning to company licensing, the draft essentially creates a "port of entry" system which bars states from requiring an insurance company to acquire a local license if that company is already licensed by a state that is accredited by the NAIC.

However, the draft contains a federal backup. If a majority of states representing a still undecided percentage of the market have not achieved accreditation, or if the Treasury Department determines that NAIC has not implemented satisfactory accreditation standards, the Treasury Secretary may establish a new governing body to implement appropriate standards.

Finally, on market conduct, the draft requires states to provide insurance companies that fail an examination with a written explanation of the specific statutory or regulatory requirements that have been violated.

Federal district courts would have exclusive jurisdiction over litigation involving charges that a state insurance department has exceeded its authority.

The draft would allow states to enter into compacts to establish uniform market conduct examinations.

Reproduced from National Underwriter Edition, February 17, 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.