The problems of state oversight are significant, requiring reform of the system, but Congress can best modernize state rules through federal legislation, not regulation, Independent Insurance Agents & Brokers of America (IIABA) spokesman Ronald A. Smith, CPCU told a congressional panel Sept. 17.
“Reform in this manner will benefit not only companies and agents and brokers, but most importantly consumers,” said Smith at a House Financial Services Committee roundtable discussion focusing on how best to modernize the state-based regulatory system. IIABA was included because it is recognized as an innovative and pragmatic leader on the issue of insurance regulatory reform.
“Reform is necessary and must be implemented immediately. IIABA believes the best alternative is a pragmatic, middle-ground approach that uses federal legislative tools to foster a more uniform system and to streamline state-level oversight,” said Smith, chairman of IIABA’s State Government Affairs Committee and president of Indiana-based Smith, Sawyer & Smith Inc. “By using federal legislative action to overcome state-level structural reform impediments we can improve rather than replace the current state system and in the process promote a more efficient and effective regulatory framework,” continued Smith.
IIABA is spearheading a cooperative industry effort to develop a proposal that uses federal legislative tools. “We are working with other trade associations and directly with national and regional insurers to identify what needs to be fixed, how that might be done without displacing components of the current system that work so well and without creating additional layers of government bureaucracy,” said Smith. “Through this process, four specific areas for reform and the constraints on the mechanisms for reform have been identified. We nearly have completed a draft proposal.”
The first area addresses both rate and form filing and review, or so-called speed-to-market reform. The IIABA proposal would make the system market-oriented, faster and more accountable by eliminating certain laws that allow a review period for proposed forms—both commercial and personal lines—of longer than 30 days after they are filed with the insurance commissioner unless the rate or form is disapproved. Any review requirement for rates in competitive markets that requires more than a filing with the insurance department would be eliminated, yet states can approve or disapprove rates in “non-competitive” markets.
On producer and company licensing, the IIABA draft proposal would mandate more uniformity. “Our goal is to produce a system that is uniform in most aspects of licensing—applications, requirements, background checks and more—and completely reciprocal when it comes to treatment of nonresident agents,” explained Smith. “We want to accomplish the goals of the Gramm-Leach-Bliley Act, the National Association of Insurance Commissioners as well as agents and brokers via immediate nationwide reciprocity.”
To turn around market conduct examination procedures that are inefficient and duplicative, the IIABA draft plan would clarify the circumstances under which a regulator of a non-resident insurer may conduct examinations, the frequency examinations may be conducted and review procedures that will apply, noted Smith. “The proposal would require that, in a non-resident state, examinations may be conducted only to review compliance with properly promulgated statutory and regulatory requirements, and that no insurer can be deemed to have ‘failed’ an examination unless it is provided an explanation in writing that details the statutory or regulatory requirement that allegedly has been violated,” said Smith.
Addressing proposals that would override the state-based system in favor of a federal regulatory approach, Smith warned that the cost of proposed optional federal chartering proposals “is incredibly high.”
“A federal regulator would add to the overall regulatory infrastructure—especially for agents and brokers selling on behalf of both state – and federally chartered insurers—and undermine sound aspects of the current state regulatory regime. I also believe that in correcting certain problems for companies, federal regulation would create more problems for consumers,” explained Smith.
For these reasons, Smith said, Congress should look at a system that builds on, rather than dismantles, the states’ inherent strengths to meet the challenges of a rapidly changing insurance environment.
“IIABA’s proposal offers the best of all worlds,” Smith said. “It will promote the establishment of more uniform standards and streamlined procedures nationwide, protect consumers while enhancing marketplace responsiveness, and emphasize that the primary goals of insurance regulation can best be met by improving, not abandoning, the state-based system that has been in place for more than 150 years.”
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