Former Independent Insurance Agents & Brokers of America (IIABA) President Tom Ahart and Ronnie Tubertini, chairman of IIABA’s Government Affairs Committee, on Thursday provided their perspectives on the current framework of insurance regulation to a House panel and urged members of Congress to embrace a pragmatic course for reform.
Ahart verbally testified and Tubertini submitted written testimony for a hearing held by the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.
The hearing examined possible ways to reform insurance regulation and make the marketplace more competitive for consumers. Tubertini is president and CEO of SouthGroup Insurance and Financial Services based in Jackson, Miss. Ahart is president of Ahart, Frinzi & Smith Insurance Agency in Phillipsburg, N.J.
Tubertini detailed challenges faced by agents and brokers in the current insurance marketplace.
“My personal experiences with the existing regulatory system lead me to believe that insurance regulation must be reformed and modernized,” Tubertini wrote. He focused on two primary issues: agent-broker licensing and product regulation.
“The most significant burden facing my agency and my employees is compliance with the licensing requirements of the 20 states in which we operate,” wrote Tubertini. “Insurance producers of all kinds—whether operating in large commercial centers or small communities—face unnecessary bureaucratic hurdles that are imposed by distinct and often idiosyncratic licensing laws.”
Tubertini added, “I also have witnessed the inefficiencies and market problems that can arise because of the structural and procedural flaws associated with the regulation of insurance products. Many states regulate the development and introduction of new products into the marketplace in ways that cause significant and unnecessary delays, undermine the forces of competition, and create affordability and availability problems for consumers. Based on my experiences, I can assure you that consumers are among those penalized because the system is not as competitive and responsive as it should be.”
Despite these problems, the IIABA agents opposed calls for federal regulation in their testimony before the subcommittee and called for mandatory reform of the current system.
“This call for federal regulation concerns me deeply,” Ahart explained. “Although the proposed optional federal regulation proposals might correct certain deficiencies, the cost is incredibly high. The new regulator would serve to add to the overall regulatory infrastructure — especially for agents and brokers selling on behalf of both state and federally regulated insurers — and undermine sound aspects of the current state regulatory regime. As an agent who is licensed in multiple states, I can assure you that the last thing I want to do is get an additional license through a bureaucratic federal agency.”
Tubertini questioned whether a distant federal regulator would have the ability to immediately respond to consumer claims concerns. “As a consumer, specifically in terms of personal lines, there would be confusion as to who regulates their policy: the federal government or the state insurance commissioner?” he wrote. “I could have a single client who has several policies with one company that is regulated at the federal level, while at the same time having several other policies that are regulated at the state level.
“Nor can a single regulatory system harmonize the diversity of underlying state reparations laws, varying consumer needs from one region to another, and differing public expectations about the proper role of insurance regulation,” Tubertini continued. “The potential responsiveness of a federal regulator to both industry and consumer needs in several critical areas could therefore jeopardize the fundamental purpose of insurance regulation and must be considered questionable at best.”
On the course of reform, Ahart recommended that Congress seriously consider a possible third course of action. “While some pursue the traditional state-by-state approach to reform and others flirt with the dangerous notion of federal regulation, I believe a third alternative offers the best possibility for meaningful reform,” he told the panel. “We need a solution that addresses the flaws associated with state regulation by building upon, rather than dismantling, the states’ inherent strengths.”
Ahart recommended that Congress look closely at IIABA’s approach to insurance regulation reform. “I believe the best alternative for addressing the current deficiencies in the state-based regulatory system is a pragmatic, middle-ground approach that utilizes federal legislative tools to establish a more uniform system and to streamline the regulatory oversight process at the state level.
“By using federal legislative action to overcome the collective action hurdles and structural impediments to reform at the state level, we can improve rather than replace the current state-based system and in the process create a more efficient and effective regulatory framework,” Ahart added.
IIABA’s middle-ground approach reportedly builds on the states’ inherent strengths to meet the challenges of a rapidly changing insurance environment. The middle-ground plan includes pragmatic solutions for product speed-to-market reforms; rate and form filing and review; producer licensing reciprocity; insurance company licensing reciprocity and market conduct examinations, explained Ahart.
“The key to this approach is that it will lead to a more uniform and market-oriented system on a national basis while preserving and strengthening the regulatory infrastructure at the state level,” stressed Ahart to the subcommittee. “It will also allow many overdue reforms, including much of the NAIC’s regulatory reform agenda, to take effect countrywide following the adoption of a single legislative act. This pragmatic concept addresses many of the legitimate criticisms lodged against the current system and would enhance state insurance regulation without replacing it altogether.”
This “national treatment” proposal is the product of a cooperative effort between the Big “I”, other insurance trade associations and a number of individual national and regional insurance companies.
In his remarks Ahart also expressed mixed emotions in his analysis of the updated action plan by the National Association of Insurance Commissioners (NAIC).
“I am pleased that the NAIC is renewing [its] commitment to modernizing the state-based system of insurance regulation and outlining specific objectives for the coming months and years,” Ahart said. “Many of the NAIC’s stated goals are critically important, and I welcome their inclusion in the document. On the other hand, I am somewhat disappointed that the action excludes other potential steps and establishes certain time frames that are more than five years away. Earlier drafts of the action plan were more aggressive and called for reforms to occur in a quicker period, and I would have preferred to see the NAIC stick to some of the objectives considered in earlier versions.”