WASHINGTON–The Government Accountability Office said in a report released yesterday that inconsistencies, such as conducting background checks and fingerprinting, remain in state licensing of insurance producers.
"Without full checks on applicants, states may less effectively protect consumers," the report said, noting that "licensing standards, including how state regulators define lines of insurance, also vary across states, further hindering efforts to create reciprocity in agent licensing."
The report said the differences "may result in inefficiencies that raise costs for insurers and consumers."
The GAO said in the report that as Congress considers changes to its oversight of the insurance industry, it should seek to ensure all states and jurisdictions can conduct nationwide criminal background checks as part of their producer licensing and consumer protection functions.
The report recommends the NAIC and state insurance regulators work with the insurance industry to identify product approval differences among state regulators and improve how consistently state regulators review and approve product filings.
According to the report, reciprocity of producer licensing among states has improved, but consumer protection and other issues "present challenges to uniformity and full reciprocity."
Although some improvement was noted since the Gramm-Leach-Bliley Act was passed in 1999, the report said NAIC officials said that as of March 2009, only 17 states were performing full criminal history checks using fingerprinting.
And, the report added, some states that do such checks have been unwilling to reciprocate with states that do not.
"In addition, some insurance regulators in our sample noted that regulators do not have a systematic way to access disciplinary records of other financial regulators," the report said.
On approval of insurance products, state insurance regulators have become more efficient, but barriers exist to greater reciprocity and uniformity.
The report said that NAIC and state regulators improved product approval filings by creating the System for Electronic Rate and Form Filing (SERFF) in 1998.
This has simplified filings and reduced filing errors, the report said, but SERFF does not address differences in regulators' review and approval processes.
In addition, an Interstate Compact was created in 2006 to facilitate approval of certain life, annuity, disability income and long-term care products, which are accepted across participating states, the report said.
As of March 2009, 34 states participated in the Compact, the report said.
"However, the Compact leaves some decisions on approval up to the individual states, and several key states have not joined because they feel their processes and protections are superior to the Compact's," the report said.
"Moreover, differences in state laws are likely to limit reciprocity in the approval of property/casualty insurance products," it added.
To the extent these areas lack reciprocity and uniformity, some industry participants noted there may be inefficiencies that slow the introduction of new products and raise costs for insurers and consumers.
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