Congress Revisits NARAB, As Industry Groups Split On Licensing Approach

Through NARAB, individual agent members would continue to pay the appropriate fees required by each state in which they are licensed and would renew their NARAB membership biannually.

NARAB would coordinate with the states on establishing a central clearinghouse for license issuance and renewal, as well as collection of regulatory information on producer activities.

The bill is based on the NARAB provision contained in the 1999 Gramm-Leach-Bliley Act, which would have triggered the facility's creation if a critical mass of states failed to achieve uniformity on producer licensing.

While the GLB provision was never triggered, many in the producer community believe the licensing system for agents doing business in multiple states remains overly costly, inefficient and duplicative.

Backers of the new bill include the Independent Insurance Agents and Brokers of America and the National Association of Insurance and Financial Advisors.

The Council of Insurance Agents and Brokers–which originally proposed NARAB in 1999–voiced qualified support. Joel Wood, senior vice president of government affairs, said CIAB–which seeks an optional federal charter–"will work with IIABA and others to ensure the federal licensure mechanism works and that it folds in to other, more overarching regulatory reform initiatives seamlessly."

Scott Sinder, CIAB's outside counsel and a partner at Steptoe & Johnson, explained that "although the enacted NARAB provisions helped to facilitate a major modernization in the licensure regime for insurance agents and brokers, significant problems still remain, and we welcome the IIABA's support of a NARAB-II solution to those problems."

Mr. Sinder noted that "CIAB has supported licensing reform since it formed its first task force on the issue in the 1930s."

However, the American Insurance Association–another OFC backer–was highly critical, charging that the bill "would not result in the comprehensive insurance regulatory reform that is needed."

Charles Symington, IIABA's senior vice president of government affairs, said the new legislation streamlines nonresident agency licensing while preserving the market conduct rights of state regulators and their ability to oversee producers.

"Agents and brokers have been burdened for many years with the archaic and inefficient nonresident licensing maze," he said. "They have been seeking real reform to make the nonresident licensing system more efficient and effective. NARAB II is the answer."

Mr. Symington said "agents and brokers do not want to get bogged down in larger debates or controversial issues. Rather, they need immediate action. This bill provides a common-sense solution…"

Mr. Symington emphasized the oversight board established by the bill only relates to marketplace entry and would not impact the day-to-day state regulation of insurance. He added that NARAB would not be part of, or report to, any federal agency and would not have any federal regulatory power.

However, Mr. Sinder said CIAB will work to correct what he termed the only "flaw" in the legislation–the composition and membership of the board. He explained that under the bill, the majority of the nine-member board would be appointed directly by private industry groups with no public oversight, while four members would be state regulators.

He added that the role of board president would be limited to vacating NARAB decisions only if the president "determines and certifies to the Speaker of the House, the House minority leader, the Senate majority leader, and the Senate minority leader [that the rule] is contrary to the purposes of" the NARAB legislation. "That is a very high standard," said Mr. Sinder.

"We believe these governance/oversight provisions are unconstitutional, and we want to work to fix them because we like the overarching concept," Mr. Sinder said.

"If we want a federal regulator–which we do–let's create a real one that satisfies all of the requisite legal and practical considerations that will allow it to do everything we hope such a federal regulator can do," he added.

AIA President Marc Racicot, the former governor of Montana, said the NARAB-II bill would not be an arm of the federal government and would not have any day-to-day federal regulatory oversight.

"This raises serious questions about how and if NARAB II would work," he said. "It has the potential to be more confusing and intrusive than an optional federal charter because the bill displaces the entire state licensing system outside the producer's home state through membership in a private association."

By contrast, the National Insurance Act, which would establish an OFC, "seeks to preserve the ability of insurers, reinsurers and insurance producers to decide whether or not to opt for national regulatory oversight, while not ousting the state regulatory system for those that opt to remain state-regulated," Mr. Racicot said.

Mr. Symington said IIABA remains opposed to an OFC but will continue its support of other "targeted federal legislation to modernize the state system"–such as H.R. 1065, the Nonadmitted and Reinsurance Reform Act, which passed the House in 2007, that would set federal standards for state regulation of surplus lines and reinsurance. "The IIABA will work with other interested industry supporters of [H.R. 1065] to achieve Senate passage of companion legislation," he said.

Peter Ludgin, executive director of Agents for Change, a group formed to support an OFC, said that idea best accomplishes what agents are after. "NARAB II may rectify current licensure problems, but it would not address speed-to-market issues or take into account the benefits of free-market pricing," he said.