Groups Disagree on Producer Licensing Model Language

What’s in a word? A lot—at least according to the National Association of Mutual Insurance Companies (NAMIC). In a press release, the association announced a July 11 letter, sent to the chair of the National Association of Registered Agents and Brokers (NARAB) Working Group, concerning what was termed an “impasse” involving the Independent Insurance Agents of America (IIAA) and certain language contained in the Producer Licensing Model Act.

However, the real issue would seem to be how deeply this disagreement over language will affect the common goal of all parties involved. That common goal is to forestall the implementation of a NARAB, which many view as the harbinger of a federal regulatory system.

“This is part of the federal Gramm Leach Bliley bill,” explained Neil Alldredge, state relations manager for NAMIC. “What it says is if a majority of states (29 because they count the territory as well) do not reach some uniformity on agent licensing by November 2002, NARAB would be created.”

The language in dispute, located in Section 4, subsection B(8) of the model and referred to as the Scope of Licensure section, basically deals with licensing requirements. Specifically, the troublesome wording focusing on exemption reads as follows: “Employees of an insurer or of an insurance producer who respond to requests from existing policyholders on existing policies provided that those employees are not directly compensated based on the volume of premiums that may result from these services and provided those employees do not otherwise sell, solicit or negotiate insurance.”

The letter, addressed to Iowa Insurance Division Commissioner Therese Vaughan, was signed by NAMIC as well as by the following groups: Alliance of American Insurers, American Council of Life Insurers, American Insurance Association, Council of Insurance Agents and Brokers, National Association of Insurance and Financial Advisors, National Association of Professional Insurance Agents, State Farm Insurance Companies, Prudential Insurance Company of America, and Liberty Mutual Insurance Company.

In a nutshell, the crux of the disagreement is how the inclusion of the word otherwise affects interpretation of the paragraph. NAMIC and the other signatory organizations expressed the following view:

“We will advocate enactment of the current model language because we believe that it is critical to establish within the states a uniform licensure standard for producer and insurers service employees…we remain convinced that elimination of the word ‘otherwise’ from the sentence would remove the exception for service to existing policyholders on existing contracts.”

“There’s a lot of disagreement about the interpretation of what that provision means,” said Wesley Bissett, IIAA vice president-state government affairs. “Certainly we believe that unlicensed people should be prohibited from selling, soliciting, offering advice or making recommendations.”

“This actually came out of the Orlando NAIC meeting in early June,” Alldredge said. “It had come to their…attention that most of the industry groups and the agents were in disagreement over this section. We were advised to work it out under a certain time frame.”

Alldredge said all parties involved made an honest good faith effort and finally reached a place where 10 of the groups, including three agent groups, were able to agree. “We do agree on about 90 percent of this model, but when it came time to actually sign the letter that we needed to send to Terri Vaughan, the agents weren’t ready to do that.”

According to the IIAA, the suggestions it made at that time ranged from deletion of the entire provision to eliminating the word “otherwise” to other textual changes to the model. Another issue brought up in NAMIC’s press release is the view that if the IIAA will not budge from its stance with respect to the wording in Section 4B(8), a battle could be enacted in every state that will consider the model for passage next year.

“We really don’t want to do that,” Alldredge said. “We don’t expect every state to pass this word for word…that’s a recognized position, but once you start opening this model up, you could end up with a totally different product than you started out with…We think it’s critical to pass it largely in the way that it exists now.”

Bissett, however, said the provisions at issue have nothing whatsoever to do with NARAB, reciprocity or a state becoming NARAB compliant.

“Our only suggestion is that if we’re really concerned about uniformity in interpretation, why not be crystal clear in the text of the statute,” Bissett said. “I don’t know what it means to ‘otherwise’ sell, solicit or negotiate. But what some other segments of the industry have said in the media is that gives them wiggle room…So for those companies that want to skirt licensing laws, this gives them at least a strong argument.”

When asked how the inclusion or exclusion of the word “otherwise” could drastically change the meaning of the sentence, Alldredge explained NAMIC’s take on the issue.

“We think it adds a bit of flexibility and adds a little more clarity,” he said. “In other words, it’s not somebody who directly as a part of their everyday routine sells, solicits, or negotiates insurance. The agent’s perspective is that with that word in there, it gives customer service representatives, office managers—people that are not agents necessarily—the ability to do that. Our view is that it does not.”

“The astonishing part of this whole process is that we’ve got 10 industry groups that have agreed on it,” Alldredge added.

However, Bissett countered that all the groups that signed the letter are not of a unanimous voice about who should be licensed and what that particular section means, and, in fact have completely different and conflicting views about that section.

“The only thing that you need to do to forestall the creation of this NARAB entity is to achieve licensing reciprocity among a majority of the states,” Bissett said. “You could do almost a minimalist-type approach and you would have satisfied the NARAB requirements. The state of Missouri has done that. They only adopted those provisions that were essential in order to prevent NARAB from coming into existence.”

Bissett added that North Carolina and other states have looked at taking the same approach.

“There’s no reason to reduce the standards of licensure just because we’ve got NARAB out there,” Bissett concluded. “NARAB doesn’t require you to do that. And we shouldn’t do that in the process of achieving reciprocity.”

Topics Carriers Agencies