If and when the federal government resumes operations, a multistate producer licensing reform bill long pushed by the country’s insurance agent lobby could be among the few bipartisan pieces of business Congress tackles and actually passes.
The National Association of Registered Agents and Brokers Reform Act of 2013, or NARAB for short, aims to streamline the licensing process for producers doing business in multiple states. The measure has passed the House of Representatives (397-6) and awaits action by the full Senate. This bill has been in this position twice before— approved by the House but waiting on the Senate—but industry lobbyists are optimistic that this time the Senate will actually vote and pass it. The Senate Banking Committee has already cleared it.
“There are lots of big issues, completely unrelated to insurance, capturing the attention of officials in D.C. these days, including the events in Syria, our debates over appropriation issues, and the debt ceiling, so it’s not a slam dunk by any stretch, but the bill is faster to final passage than it has ever been before,” says Wes Bissett, senior counsel for government affairs at the Independent Insurance Agents and Brokers of America (Big “I”).
What is NARAB? Why do, or should, the country’s insurance agents care about it? What’s wrong with the way licensing is handled now by states? How will it streamline licensing? Will it create a giant bureaucracy? Is it mandatory? Will it cost more and who will pay for it? Is it another scheme to introduce federal regulation?
Insurance Journal’s Andy Simpson put those and additional questions to the Big “I”’s Bissett as NARAB inches closer to reality. The following is an edited version of the interview, which may be heard in its entirely here on insurancejournal.tv.
So it’s looking like it’s closer to enactment than it’s ever been before. I’d like to remind people what the purpose of NARAB is. Why do agents and producers want this? What’s the problem that it is trying to fix?
Bissett: There’s a little bit of history here, so let me give you some of the reasons why this has been a priority for many agents and brokers, and it really goes to this simple fact, which is any producer has to be licensed in every jurisdiction in which they operate.
What agents who operate in multiple states often find is that there are inconsistent standards, there are duplicative licensing processes in the various jurisdictions, and in order to comply with these basic administrative requirements, agents and brokers are going through similar processes in different states, and it takes a lot of time.
There’s a lot of cost, both direct cost and opportunity cost, and also it makes it harder for our folks to effectively respond to the needs of their clients.
It’s become a bigger issue as just economics and society has changed. Decades ago, a person would deal with their insurance agent around the corner, and it would be typical for an insurance agent or broker to operate in maybe one or two states, but that’s simply not the case anymore. We’ve got lots of agent members who are licensed in all 50 states, and there are many small and mid-sized agencies who operate in over 25 jurisdictions.
We’ve done some research at the Big I on this, and what we’ve found is that the typical, the average agency, is operating now at an average of nine states, so that’s more than, I think, many people would expect. These issues may seem relatively small and nitpicky, I know this isn’t a sexy issue, but when you look at the numbers that exist, it really compounds the problem.
I’ll give you an example, and this is data that goes back to 2009, but there are over 230,000 individual insurance producers who are licensed in more than five jurisdictions. There are 15,000 insurance agencies, business entities that operate in more than five jurisdictions. So we’re talking about a fairly significant issue, and we have members who are spending, oftentimes, thousands of dollars in both licensing and processing fees to achieve compliance.
A particular problem is that these compliance costs hit smaller and mid-sized agencies more than they do big agencies. If you’re a national player, it’s relatively easy to perhaps achieve compliance because you have the resources to do, but it’s take a bigger chunk of your operating expenses if you were a smaller agency.
The other thing I’ll mention is that states have failed to truly grasp and implement true licensing reciprocity, and the notion that if you’re licensed in good standing in your home state, and you want to operate in another state, what should be required of you is essentially that you be in good standing and you pay the appropriate fees.
This principle goes back to the Gramm-Leach-Bliley Act of 1999. It’s something that the NAIC has embraced, and all states have tried to implement, but the reality is that true licensing reciprocity has just remained elusive, and yet states implementing extra requirements, just imposing administrative requirements that are simply not supported in the law.
The reason for NARAB II is it would provide the ability for agents and brokers to satisfy these multi-state administrative licensing requirements in a relatively quick and efficient way, and ultimately, through that, reach the goal of true reciprocity that the industry, and producers, and state regulators have been trying to achieve for almost 15 years now.
How would NARAB accomplish that? How would it be organized and structured, and how would an agent access it?
Bissett: In order to take advantage of the benefits that NARAB, the National Association of Registered Agents and Brokers, would offer, you would have to become a member of NARAB if you were an agent or broker, and to do that, the first thing you’d have to do is you’d have to be licensed in good standing in your home state.
It’s really a two-step process in order to realize the benefits of NARAB. You’d have to be licensed in your home state and you’d have to be a member of NARAB, and to do that you’d have to satisfy the membership criteria that NARAB would ultimately establish. One of the most notable elements to that would be the requirement that you complete a criminal background check.
I know you know this, but states have, for a long time, been trying to raise the bar in terms of criminal background reviews of prospective agents, so the NARAB II bill would establish a requirement that in order to become a member, you’d undergo such a check, and once you were a member of NARAB, you would have the ability to designate the states in which you wanted to operate.
You could pick 10 or 50 states in which you’d want to operate. You would let NARAB know that information through an online portal, and it would collect the fees. One of the key elements to this is you would still have to pay the state licensing fees to those jurisdictions, but it’d be a much simpler process.
You’d designate those states. NARAB would collect the fees. It would let those states know that you have gained the authority to operate in those jurisdictions through NARAB membership, and you’d be able to act and operate as an insurance producer in any of the jurisdictions that you had designated.
One key element, though, one huge part of this to a member is that there is nothing in the bill that would displace state insurance regulation, so you would be responsible for continuing to comply with state law. All regulatory authority is left in the hands of state officials. There’s nothing, for example, that would limit or restrict the ability of state regulators to enforce their marketplace and consumer protection laws.
If you were an agent, you’d use NARAB to get into the marketplace. State regulators could still investigate complaints and take enforcement and disciplinary action against you if you had violated the law in some way.
This is only about those administrative requirements, the market entry. All other components and elements of state insurance law would continue to apply, and that’s a big part of the bill, and something the proponents of state regulation, that the Big “I” feels very strongly about.
Every agent or producer would still have to be licensed in his or her home state before proceeding any further.
What professionals does NARAB affect? We’ve got property/casualty, life health. You have multiple lines, surplus lines, even claims adjusters. Who would be able to access this?
Bissett: What NARAB would do is it would create categories and classes of membership based upon those that exist in current state law, so the vision is that there would be the ability to obtain P&C, life, health licenses, surplus lines licensing requirements, you’d be able to comply with through NARAB as well.
With regard to your question about claims adjusters. The bill as drafted only applies to producers, all the various lines of authority that producers might engage in, but does not apply to claims adjusters.
There’d be a non-profit board created that would set what you call membership standards. Who would be on this board? How do they get on the board? What is meant by membership standards?
Bissett: The board that would operate is essentially a committee, a governing body, for the NARAB association. It would be a 13-member board of directors. Eight of those members would be state insurance commissioners. Two of those additional board members would be people who would have “demonstrated expertise and experience with life or health insurance producer licensing.” Then three would have demonstrated experience or expertise in P&C insurance producer licensing.
Essentially, eight insurance commissioners and five private sector representatives would sit on the board. They’d have a very limited mission, essentially to get the organization off the ground. Then ultimately, to set the membership criteria, which would include basic things like personal qualifications, training, et cetera.
There was concern expressed that if NARAB was created, that there might be a race to the bottom. There was a fear that if you didn’t have a separate set of NARAB criteria that there could be some random state that would issue producer licenses without any meaningful training requirements whatsoever.
First of all, that’s not the case today. There’s no state that doesn’t have a meaningful training requirement. The NARAB membership criteria really would exist as a backstop, just to prevent against the possibility that that race to the bottom might arise. Which, almost certainly, wouldn’t happen, but it’s just a safety valve.
The reality is that the membership criteria would be designed. They’d be based on the NAIC’s producer licensing, modeled after requirements that are found in that act, and which are in place in nearly every state today. They would look at the highest level of qualifications that exist under state law.
The assumption is, if you come from a state that takes producer licensing seriously today, if you’ve satisfied those qualifications, there’s unlikely to be much of an additional hoop that you’d have to jump through in order to be a NARAB member.
It is possible that someone in a particular state might find they face different standards or requirements than they would face if they just would have stuck to their own state.
Bissett: Right. What the bill actually says is that NARAB, that the board, could not adopt any qualification less protective to the public than those contained in the NAIC’s Model Law. It also gives the board the authority, or the direction, to consider the highest levels of qualifications as the state levels.
In today’s marketplace, most states are fairly consistent in what they require of resident agents in terms of training and qualifications. The hope and the expectation is that what you would be required to do through NARAB would not be that much, if at all, above and beyond what you had done at the resident state level.
The one exception that might exist is, if you had not completed a criminal background check within the last few years, you would be required to undergo that as a condition of becoming a NARAB member.
What are the costs estimated for running this? Who pays for those?
Bissett: Some of those issues would remain to be seen once the board is established and they start to tackle those issues. The board would be funded by the membership fees that people would pay to NARAB. As a non-profit, the fees would only be large enough to cover the costs of the operations in NARAB.
As you might expect, there’s going to be some upfront costs associated with getting this off the ground. NARAB is empowered and authorized to borrow funds and secure funding in a number of ways to get the operation off the ground. Those founds would ultimately be repaid.
One thing I should note though is that the bill specifically prohibits NARAB from receiving, accepting or borrowing any dollars from the federal government. The upfront funding that is going to be necessary to establish NARAB can come from a variety of sources, but it can’t come from the federal government.
As far as producers are concerned, is this an optional system or a mandatory system? If I’m an agent and I write in more than one state, is this the only way I’m going to be able to get licensed to go in multiple states, or is it really my choice whether I join NARAB?
Bissett: It is 100 percent at your choice. Obviously, if you’re only operating in one state, in your home state, NARAB is going to hold zero appeal for you. There’d be no reason to participate in NARAB, perhaps.
If you’re a multistate agent, you’ll be faced with a decision. Do you want to continue to obtain licenses as you have in the past, going state-by-state, in securing the necessary approval, or is the efficiency that’s offered by NARAB and the benefits of membership enough to warrant your participation as a member? That’s going to be probably a business-to-business, individual-to-individual calculus.
If you’re operating in a significant number of states, the benefits and simplicity of joining NARAB will probably be sufficient to outweigh going through the state-by-state slog that many people do today.
On the surface, there would be no cost savings in the sense that the fees that the states charge, a producer would still have to pay all of those. Would the savings be in time and efficiency?
Bissett: Exactly right. A lot of producers today, because the system’s so complicated, they’ll have people on staff that dedicate a significant part of time trying to obtain compliance and maintain compliance with these state laws. Other times, what they’ll do, is they’ll actually work with outside vendors that help them through this process. There will be savings associated with that.
There are also some additional benefits to participation in NARAB. One of the things that the bill provides is that, if you are a member of NARAB, states are prohibited — this is a provision that applies outside of your home state — any state outside of your home state, if you are a member of NARAB, cannot impose a requirement on you, that you be licensed, registered, or otherwise qualified to do business, in a particular state.
That also applies to foreign corporation registration requirements. Some of those registration mandates that states often times apply to agencies would not apply to those who are NARAB members. I mention that because there are some direct costs that would no longer apply if you’re a member, in addition to the sort of opportunity cost that you mentioned.
Will there then be a national database of licensed producers? Who can have access to that? Is this going to be available to the public? Can it be sold? What type of information on a producer will be in it?
Bissett: No. NARAB will have an internal database — that it will have to know who its members are and that sort of thing.
In terms of IT, the two elements that the bill requires are…it requires the creation of essentially what the bill refers to as a clearinghouse, where agents can go and essentially designate the states in which they want to operate. That’s where the fees will be collected and so forth.
The bill also says that the association has the authority…it’s not required to, but it may, establish a database. Just to keep tabs on its own members, know who they are, know which states they’ve designated to operate. That sort of thing.
There’s nothing in the bill that suggests that the information would be made publicly available. There’s actually a provision. There are also some strong information-sharing limitations to ensure the confidentiality and privacy of sensitive information.
That type of information specifically would not be made available to the public and would be prohibited to be released to anybody who’s not a regulator or law enforcement official.
If I’m a risk manager, I can’t go to this database and look up Joe Smith and find out about a broker?
Bissett: One thing that NARAB may ultimately want to do — I suspect this would be something that they would weigh based on demand — is if there’s a desire to have a public portal, where people could come and see how many states…is Andy Simpson really in good standing in these states? Can I go and see where you might be? There may be a desire and a demand for that sort of portal, which the board will weigh.
The other thing is that NARAB is directed to notify every state that a NARAB member designates. Once a NARAB member says, I want to operate in 10 states, immediately those 10 states are notified that the person has the authority to operate there.
There’s also a presumption that the states will have that information. Many states have created online portals like we’ve talked about, where you can go and see exactly who’s been authorized to operate in those jurisdictions.
Do states have to participate?
Bissett: There’s really nothing for states to do. They don’t have to do anything. There are no mandates. There’s no action that’s required of states by NARAB. There’s nothing that they have to do. There’s no active participation on the part of states.
They will continue to license nonresidents who don’t become NARAB members. They’ll continue to license their resident applicants. They’ll continue to regulate the marketplace, just as they always have.
I know we talked about membership standards but would you be specific, for instance, in the area of continuing education? How is it going to affect the continuing education requirements that a producer will have?
Bissett: What the bill says with regard to CE is that NARAB will establish a CE requirement which will be comparable to the CE requirements under the laws of a majority of states.
One of the few areas where there is some degree of uniformity when it comes to licensing today is in the area of CE. CE requirements today in every jurisdiction only apply on a resident state basis.
Agents and brokers normally are obligated to comply and satisfy the requirements at their home state level. Most states impose a 24-hour CE requirement every two years. A plain reading of the bill indicates that at least in today’s world, NARAB would establish a similar requirement, since that’s what most states have — 24 hours every two years.
What the bill then goes on to say is that there’s essentially reciprocity. That if a NARAB member is satisfying the CE requirements that are equivalent to whatever NARAB sets, there’s no additional requirement that will apply.
The net result of all this is that presuming that NARAB sets the 24-hour standard, most agents are already in states with such a standard, so they’ll be complying with their NARAB CE requirement as they satisfy their residence-state requirement.
Are there any benefits that you can think of for consumers in this process?
Bissett: Yes, absolutely. The biggest one is the ability of agents and brokers to now quickly and efficiently obtain the authority to operate on a multistate basis. There’s no longer this situation where you have a customer — maybe a commercial customer, for example, who has a new exposure risk in a particular state.
What happens too often in today’s world is the agent will apply for a license in that new jurisdiction or jurisdictions. They won’t get a quick answer about whether they can operate in that state.
They may be asked to submit additional paperwork. The state or states may second-guess the licensing decision that was originally made in the home state. You can get caught in this limbo-type situation.
Now what’ll happen is instead of the agent having to either send that business to somebody else or share the account with another agent who’s not as familiar with the customer, now that agent can really service the needs of that particular person or business.
What it’s going to do is make agents much more able to respond in a timely way to the needs of the clients.
I’m sure you hear from people who are concerned that it sounds a little bit like a step towards federal regulation, towards some national producer license. How do you answer those concerns?
Bissett: I think by explaining what the bill actually does. We haven’t heard many concerns about that, and I think the fact that the House voted 397 to 6 is a testament to the bipartisan, broad-based support for the bill.
But you’re right — there are some people who don’t know very much about the bill and who raise, oftentimes, some threshold questions about it or make statements about it that aren’t really based on what the bill says.
A number of provisions in the NARAB II legislation reinforce the important principle that insurance regulation remains in the hands of state officials with this bill. The Big “I” has been a longstanding, active proponent of state insurance regulation. We would not support any legislation that would undermine state insurance regulation in any way.
I also think it’s very telling that the constituency that would have the most concern about any sort of undermining of state insurance regulation supports the bill — namely, the country’s insurance commissioners. The NAIC, the National Association of Insurance Commissioners, has endorsed the NARAB II legislation, and has been very helpful in educating members of Congress about it.
If anybody would be concerned about any undermining of state regulatory authority, it would be that group — and they strongly support the bill. There’s nothing in the bill that establishes a national producer-licensing requirement, for example.
We respond to those questions simply through education and a discussion of what the bill actually provides.