Insurance Journal had a chance to sit down with newly-elected Secretary-Treasurer Joel Ario, Administrator of the Oregon Department of Insurance, at the National Association of Insurance Commissioners’ Winter Meeting in Anaheim, Calif. Excerpts from our interview are included below. The full video interview
can be viewed on our Web site at www.insurancejournal.com/events/naic.
Insurance Journal: Mr. Ario, will you please talk to us about your plans as the secretary-treasurer of the NAIC?
Joel Ario: Yes, I think the top of our agenda is the elephant in the room, which is federal versus state regulation. I think we’ve now made our case in general terms to Congress about the value of state regulation and how it’s better than federal regulation. Now is the time to put together a strategic plan to go to Congress with, explaining in more detail and offering more insight into what it is about state regulation that protects consumers better than a federal regulatory system could.
IJ: You are the chair of the National Insurance Producer Registry (NIPR). How can this assist in the streamlining of producers licensing processes across the states, which is on the NAIC agenda for next year?
Ario: The Registry has been around now for about seven or eight years, but in the last couple years it has made some real strides. We now have an electronic database of 3.7 million producers. We have every state participating in that database and we have a majority of states, about thirty this year, now allowing residents to go up to the NIPR portal and enter their licensing information. If they don’t have misconduct problems, they are automatically licensed through that system in a matter of minutes. Then, those applications are sent back to the states in a batch job each night.
So, we now have a seamless streamlined way to do non-resident licensing, and decided we wanted to do the same thing with agent appointments and terminations. Then we want to look at resident licensing the same way. So the ultimate vision here is one national database that will be the point of entry for all agent licensing. There are a number of policy issues that have to be resolved until we get to a full participation in all aspects of agency licensing. But, through NIPR, we have the technology now in place to have a seamless streamlined licensing process for agents.
IJ: What type of policy issues?
Ario: The non-resident licensing system is an easier thing to work through. Because the resident state is really the state that carefully checks a producer when they first come in. You can’t have a non-resident license unless you have a resident license somewhere else. So that makes for an easier process from a policy perspective. But, I think we’re moving towards uniformity in our licensing laws, we’re already at reciprocity for non-resident purposes. As we move towards uniformity in resident licensing standards, we will be in a place to make the resident licensing process a streamlined electronic process as well.
IJ: Noting the number of states that do not fully utilize the services of the National Producer Database for one reason or the other, can you tell us if there any reason to be concerned with using the database to its full capacity? Is accuracy a problem?
Ario: I think we’re moving past those problems. Our executive director Mary-Ellen Wagner, has made data-quality job number one within NIPR. And, I think states are growing in their confidence in the accuracy of the database. It’s part of the change over from paper to electronic in any area of regulation and frankly in any area of business. There are always going to be concerns about, “Gee I don’t have the paper any more, I wanted to see the paper and test the paper.” And so with these electronic databases comes skepticism initially. But, I think when you look at it carefully the functionality is every bit as good as paper records. Over the next couple of years we are going to be able to move to full reliance on that database for things like checking agent history and records.
IJ: Do you think if you were able to move to full reliance on that database that it would alleviate agents’ concerns over uniform and consistency of the licensing process among states?
Ario: I think we’re moving in that direction. Probably the biggest policy issue that we have yet to face is that there are a number of states, I think about 12 or 13, that require fingerprinting for resident licensing. In the discussions at the NAIC, the states that don’t require it think [fingerprinting] is the high common denominator standard and they all ought to move to that. So the biggest policy issue that we have to resolve is digital fingerprinting. So that in a system where we’re all relying on each other, we all have access to agents’ records and can make sure, both for resident purposes and non-resident purposes, that we don’t have agents coming into our workforces with felony records or other criminal problems.
IJ: You are also the chair for the Credit Scoring Working Group. Can you tell us a little bit about the primary goals and objectives of this working group? And also, where are we in terms of implementing the NCOIL Model Act (National Conference of Insurance Legislators)?
Ario: Well I wouldn’t say everyone is happy with that model act. In my state we passed credit scoring laws that are, I think, significantly stronger in terms of consumer protection than that model. I would say that model is probably the most common model in the states, with probably half the states having some version of the NCOIL Model.
But, for instance, in my state the legislature said once somebody has been accepted as a customer, and is coming up for renewal, you have to rely on the history that customer had with you and not check credit history or credit scores anymore. So in my state, we ban the use of credit scoring for renewal, we ban it for canceling people, we also ban it for use in rating people up at renewal. That kind of decision should be based on their behavior with your company. If there are no claims from someone with our company, but we have a theoretical model that predicts they might have future claims, well we want to wait and see if they have some claims and then rate the person up. That’s the philosophy in my state and a couple other states have similar sorts of laws.
IJ: What about the issue of claims history reports? Do Oregon insurers utilize claims history reports for underwriting such as the CLUE database?
Ario: Yes, but there are some issues about what constitutes a claim. If somebody calls up and makes an inquiry about a claim and doesn’t file a claim, should that count? CLUE says it should not count but, there are consumers we find who have those kinds of inquiries counted as claims. And I think there are some issues about that [at] ChoicePoint and how well it can actually monitor what is entered into its database. That takes the cooperation of all the insurers and I think they have pretty good standards. But, whether all of the insurers are complying with all of those standards, well there seem to be some real questions there.
IJ: Is this an issue that the NAIC will be addressing in the future or is it something that your credit scoring group has discussed?
Ario: The credit scoring group is really looking at two broad issues. In my legislature and in other legislatures there are questions about whether credit scoring has a disproportionate impact on certain populations groups. Statistics show that young people probably have more trouble under a credit scoring system. There are questions about whether certain racial minorities have more trouble under a credit scoring system. So, we’re going to look at the overall effects of credit scoring, not just on the aggregate population, but on specific sub-groups of the population. To see if it is actually causing access problems and availability problems for certain types of groups, young people, low income people, racial minorities, that sort of thing.
The other issue is, we have these laws out there that differ in many respects. But there are some common elements. Almost every law says if you make an adverse decision based on a credit score you have to tell the person, in fact federal law requires that, and give them an opportunity to correct their record. [For example] You can’t use credit as the sole factor in the NCOIL model. People have different views of what that really means.
So, the second issue we are going to try and get our hands around is, can we come to common interpretations of some of the terms in these laws. I think the public has spoken to their legislatures that they don’t want credit scoring used in an unrestricted way. There are also very few states, Hawaii and Maryland are the only two I know of, that have said, “We don’t want to use it at all. We’re just going to ban it.” Now we’ve got to determine exactly what it is those regulations mean and if there are some common elements that states can be more consistent with.
There is actually one more NAIC priority which is our market reform agenda. In the state versus federal debate I think the first point is agent licensing. We talked about that, getting to a uniform, consistent agent licensing system. Second is product standards for life and annuity products. Lets get to uniformity there. That’s a policy position the NAIC has and I think there is pretty broad agreement among the commissioners. The third issue is, how do we get to a system of market oversight or market regulation in which the states work together more collaboratively? And what we did at this meeting was to adopt a market analysis handbook in which all the states are now agreeing to look at the same kind of complaint data, the same kind of financial data and other key market indicators. And through that analysis process identify the trouble companies. Then, work through a national process to collaboratively zero in on those problems.
IJ: Do you think there is anyplace at all in insurance regulation for a federal commissioner?
Ario: No, I don’t think that in insurance regulation, consumers in particular, would be well served by a system where you had either a federal regulator that replaced the state regulators or a dual charter type of option. A dual charter option in many ways is worse than a federal regulator because it really becomes a regulatory arbitrage system in which the federal and state regulators are put at odds with each other as the industry picks and chooses.
So I think both of those models are non starters for us, and I don’t think they work for consumers. What may be a role for Congress is to look at certain key issues like agent licensing or product standards and say, “Gee it looks like 30 or 40 states have come to an agreement and there are a few outlying states.” Then maybe we can start talking about ways in which the federal government could help us achieve uniformity with those outer layers. That is still a controversial issue here that would take a lot of discussion. But there may be ways, some people call it NARAB on steroids, to take what Congress did with agent licensing when they said, “You the states will get uniform reciprocity with in three years or we the Congress will take over that function.” They prefer to center the gun on some other issues in that way. I’m not asking for that now. I think we can get there on our own. …
In some ways you can make an argument that although we were moving ahead on licensing, the three year deadline that Congress gave us may have added some impetus. Maybe that could be used on other issues. That’s the kind of thing that is being discussed more. States want their protection, they want to be able to protect consumers in their states. So if we are going to get to uniformity on any of these things, maybe that’s a way it can be done.
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