NAIC To Reexamine Whether All States Comply With Uniform Producer Licensing

Insurance regulators will discuss a plan later this week to ensure all states remain in compliance with a federal requirement that they maintain uniform licensing standards for insurance agents and brokers.

The upcoming action by the National Association of Insurance Commissioners was discussed last week by Roger Sevigny, NAIC vice president and New Hampshire insurance commissioner, in a talk outlining objections to proposals for optional federal chartering of insurers.

Mr. Sevigny said licensing uniformity will be discussed by the full NAIC body at its fall meeting in Washington, Sept. 29 to Oct. 1, and a plan should be complete by the Commissioners Roundtable meeting in February 2008. His remarks were made during the 10th annual policyholder advisor conference presented here by the Anderson Kill & Olick law firm.

The reason the licensing review is being undertaken, Mr. Sevigny said, is that after the Gramm-Leach-Bliley Financial Modernization Act of 1999 was passed, state insurance regulators had to prove they were in compliance with a mandate to create uniform producer licensing requirements.

GLB stated that unless state regulators proved they had created uniform producer licensing standards, a National Association of Registered Agents and Brokers would be created to federally oversee producer-licensing activities.

A majority of states, with help from the NAIC, met the necessary benchmarks, and NARAB was never created.

Now, according to Mr. Sevigny, some segments of the insurance industry suggest there has been slippage in that uniformity and have asked the NAIC to check for continued compliance.

The program, he explained, will make sure that states are still in GLB compliance. Trade groups, Mr. Sevigny said, will offer input as to what standards should be included when looking at uniformity. Regulators will weigh these suggestions, he added, and then visit states.

In most cases, Mr. Sevigny said he anticipates that when the program starts in October, visits to departments should be completed in a day, and any variance from standards should be minor, aimed at eliminating “desk drawer” rules. For instance, if a regulator has a “pink paper clip requirement” for documents, then commissioners can easily rectify such a discrepancy, he said.

But in some cases, Mr. Sevigny said, it might be conceivable that legislative changes are needed. When asked if legislative schedules–which usually are established in the fall, and in some cases might be delayed a year if the Legislature is not in session–could cause a delay, he agreed it could.

Mr. Sevigny also acknowledged that recent friction between state insurance legislators and regulators this past spring could be a problem. What will be essential, he said, is to get the support of local producer groups to ensure necessary legislative changes are made.

Mr. Sevigny said regulators want strong, uniform oversight of producers and do not want brokers to be able to violate the law.

“We want that collaboration,” he said, and “don't want to see what happened in New York”–where the state attorney general's office uncovered evidence that major brokers and insurers rigged bids on commercial insurance.

Mr. Sevigny added that he believes most of those working in the industry are ethical and that the acts of a few created problems.

The commissioner's remarks about licensing came as part of a talk discussing the importance and relevance of state insurance regulation in the face of proposals in Congress and the industry to establish an optional federal charter system for insurers.

“There is a showdown brewing–a showdown over the future of insurance regulation,” he stated.

During his speech, Mr. Sevigny said state insurance regulators also had an interest in reexamining health care as it relates to the Employee Retirement Income Security Act of 1974, to see if some areas that have been interpreted narrowly may actually allow states more say in regulation.

At the local level, there is a better understanding of what type of health care system works best for a particular state or region, he noted.

In fact, throughout the speech, Mr. Sevigny said one major reason for state regulators to retain regulation of insurance is their proximity to consumers and ability to understand their needs.

Another reason, he continued, is the “lack of federal expertise” in insurance matters. Mr. Sevigny questioned the validity of wording in the OFC bill now before Congress indicating no revenue would be lost by states. He suggested that eventually there would be a call for a sharing of premium tax revenue with the federal government.

Mr. Sevigny said some segments of the industry support an OFC not only because of a desire for more streamlined producer licensing requirements and speed-to-market for insurance products but also because some feel “the market is overly regulated.”

When asked if insurers wanted to minimize regulatory oversight, he replied that the OFC proposal “in a pretty large measure is one of deregulation. One could naturally infer that was one goal.”

However, he said he is not personally sensing there is a “great, overpowering wave in Washington to [enact such legislation soon].” But, he continued: “Who knows [what could happen]?”