IIABA Tells Senate Panel That State Regulation Should Be Reformed, Not Abolished

October 23, 2003

There is a vital role for Congress to play in reforming the state insurance regulatory system, but such an effort need not replace or duplicate at the federal level what is already in place at the state level, the Independent Insurance Agents & Brokers of America (IIABA) testified before a Senate panel Wednesday.

The testimony came during a Senate Commerce Committee hearing on the efficiency of state insurance regulation and state efforts to modernize and streamline insurance oversight (See related NAMIC story on National news). The hearing was chaired by Sen. John McCain (R-Ariz.), who will lead the Senate’s examination of state-based insurance regulation.

“IIABA believes 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 foster a more uniform system and to streamline the regulatory oversight process at the state level,” testified IIABA spokesman Thomas Ahart, an association past president and current chairman of its State Government Affairs Committee. “By using federal legislative action to overcome the structural impediments to reform at the state level we can improve, rather than replace, the current state-based system and in the process promote a more efficient and effective regulatory framework.”

Ahart told the committee that although IIABA supports state regulation of the business of insurance, it also believes that reforms to the current system are necessary and essential.

However, the Big “I” representative said that two overarching principles should guide any such efforts. First, Congress should attempt to fix only those components that are broken. Second, no actions should be taken that in any way jeopardize the protection of insurance consumers, which is the fundamental objective of insurance regulation.

All of the perceived shortcomings of state regulation of insurance reportedly fall into two primary categories: It simply takes too long to get a new insurance product to market, and there is unnecessary duplicative regulatory oversight in the licensing and post-licensure auditing process, testified Ahart.

Ahart noted that independent agents and brokers are reportedly opposed to the creation of an optional federal regulation system and more specifically the Insurance Consumer Protection Act (S. 1373) introduced earlier this year by Sen. Fritz Hollings (D-S.C.). “We agree with our company partners that true reform of the regulatory system is needed.

However, optional federal regulation reportedly creates some significant issues and problems. A new federal bureaucracy would 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 regulatory structure,” he explained.

To address regulatory deficiencies, the Big “I” spokesman said that the association believes the states are better positioned to accommodate diversity and to respond to change. As such, IIABA has developed a middle-ground approach that builds on the states’ inherent strengths to meet the challenges of a rapidly changing insurance environment.

“Rather than employ a one-size-fits-all regulatory approach, a variety of legislative tools could be employed on an issue-by-issue basis to take into account the realities of today’s marketplace and to achieve the same level of overall reform as the imposition of a federal regulator,” stressed Ahart, president of Ahart, Frinzi & Smith, a Phillipsburg, N.J.-based independent insurance agency. “Instead of relying on the agenda of a displaced and possibly politicized federal regulator, insurance regulation would continue to be grounded on a more solid foundation—the century-and-one-half worth of skills and experience of the states as regulators of the insurance industry.

“The advantage of this approach is that it offers the best of all worlds. It will promote the establishment of more uniform standards and streamlined procedures from state to state, protect consumers while enhancing marketplace responsiveness, and emphasize that the primary goals of insurance regulation can best be met by improving and streamlining the state-based system that has been in place for over 150 years,” he testified.

During his testimony, Ahart outlined the specifics of IIABA’s middle-ground plan including its 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. He also noted that the proposal was the product of cooperative effort between IIABA, other insurance trade associations and a number of individual national and regional insurance companies.

“There is much that is good about the current state-based regulatory system,” concluded Ahart. “Our middle-ground proposal offers a way to use state oversight to create more modern, uniform and consistent regulatory procedures, and a more responsive system that will be poised to respond faster and more fully to the reality of electronic distribution and the emerging globalization and consolidation trends.”

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