Why Not NARAB For All?

Given the fact that getting an optional federal charter approved anytime soon is probably a pipe dream, I hope the industry rallies around the latest proposal to use Uncle Sam not as the industry's ultimate regulator, but more as a facilitator to make multistate licensing of agents and brokers more efficient. I also can't help but wonder why the same concept could not be applied to national licensing of insurance companies and adjusters as well.

As reported last week by our own Arthur Postal, the bipartisan NARAB Reform Act was introduced in the House of Representatives by Rep. David Scott, D-Ga., and Geoff Davis, R-Ky.

The bill, reported Mr. Postal, "provides for one-stop nonresident licensing by establishing a National Association of Registered Agents and Brokers as a private, nonprofit entity managed by a board composed of state insurance regulators and marketplace representatives."

The legislation would allow state regulators to continue supervising and disciplining producers, as well as keep state consumer protection laws intact.

NARAB membership would be voluntary, with nonmember producers free to remain licensed through their own respective states if they choose, without penalty.

Producers would have to submit to a national criminal background check for membership, and NARAB would coordinate with the states to create a central clearinghouse to track licenses as well as broker activity.

For those producers doing business in multiple jurisdictions, this seems to be a reasonable alternative to state-by-state licensing, with all the costs and hassles involved, without stripping local regulators of their consumer protection abilities.

NARAB was originally conceived by the Council of Insurance Agents and Brokers back in 1999. While it never made it as a stand-alone piece of legislation, NARAB did get tucked into the Gramm-Leach-Bliley Act as a provisional measure--triggered only if a critical mass of states failed to achieve uniformity on producer licensing.

While enough states cleared GLB's hurdle to head off NARAB's creation, most producers still complain that without nationwide compliance, multistate licensing is not nearly as efficient as it should be. Thus, even the Independent Insurance Agents and Brokers of America--no supporter of NARAB years ago, and certainly no backer of federal regulation today--is solidly behind this latest initiative.

CIAB, which would much prefer an optional federal charter, is offering qualified support at this point, taking issue with NARAB's proposed governance structure.

But other OFC backers, such as the American Insurance Association, are against the halfway measure, arguing that a national charter would be far more effective.

However, I would suggest that even if you support an OFC, the feds are not likely to put one in place for a very long time. Washington already has its hands full with the subprime fallout, and isn't keen on creating an entirely new regulatory bureaucracy to directly supervise the sprawling insurance market.

And no matter who takes over the White House next year--whether he/she is a Democrat or Republican--I cannot imagine an OFC would be very high on the legislative agenda, especially with the industry itself so bitterly divided. Legislation to enable creation of a NARAB facility would be far more feasible politically.

Again, I would even go further and propose a NARAB-type licensing entity for insurers and adjusters. The logic behind the basic concept is the same, is it not?

Passed in conjunction with a bill to set federal standards for local regulation of reinsurance and surplus lines, many of the complaints about state oversight would be addressed without an OFC, would they not?