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last updated on July 10, 2009

NATIONAL TARGETED UNIFORMITY

THE ISSUE IS

The future of insurance regulation by strengthening and reforming the current state-based system and considering the role of the federal government in regulating the insurance industry.

IT IS IMPORTANT BECAUSE

The future of the regulation of the insurance industry will be heavily debated during the 111th Congress. One approach touted as a middle-ground by its supporters seeks to reform the industry through national targeted uniformity. This approach would streamline the current regulatory system by passage of targeted federal legislation establishing uniform and consistent standards, while leaving the day-to-day regulatory control at the state level.

In late May, just prior to adjourning for the Memorial Day recess, Reps. Dennis Moore, D-Kan., and Scott Garrett, N.J., introduced H.R. 2571, the Nonadmitted and Reinsurance Reform Act of 2009. The legislation would modernize the regulation of non-admitted insurance and reinsurance markets. The proposal enjoys bipartisan support, with more than 19 additional representatives, including House Financial Services Committee Chairman Barney Frank, D-Mass., signing on as original co-sponsors of the legislation.

On June 25, Senators Evan Bayh, D-Ind., and Mel Martinez, R-Fla., introduced companion legislation, S. 1363. Senators Bill Nelson, D-Fla., and Mike Crapo, R-Idaho, cosponsored the legislation.

The Nonadmitted and Reinsurance Reform Act of 2009 would establish national standards for state regulation of the surplus lines and reinsurance markets, including a uniform system of premium taxation, elimination of duplicative compliance requirements for multi-state transactions, and direct access to the surplus lines market for large commercial insurance buyers. It also grants regulatory authority over most aspects of surplus lines insurance to the state in which the carrier is domiciled. Similar legislation has been introduced and unanimously passed in the House twice before, but never reached the Senate floor for a vote.

Also in May, a proposal was introduced that would allow insurance agents and brokers to become licensed in multiple states and would, ultimately, lead to more choices and lower costs for insurance consumers.

The legislation, H.R. 2554, the National Association of Registered Agents and Brokers Reform Act of 2009, or NARAB II, was introduced by Rep. David Scott, D-Ga., and Rep. Randy Neugebauer, R-Texas, along with 32 additional bipartisan cosponsors. It would establish licensing reciprocity for insurance producers that operate in multiple states. At the same time, it would ensure that states retain the authority to regulate marketplace activity and enforce consumer protection laws.

The legislation would establish the National Association of Registered Agents and Brokers through which one set of licensing, continuing education, and other insurance producer qualification standards could be adopted and applied on a multi-state basis. However, it would preserve the right of states to license, supervise, discipline, and establish licensing fees for insurance producers, as well as to prescribe and enforce laws and regulations with regard to insurance-related consumer protection and unfair trade practices.

Similar legislation unanimously passed the House of Representatives in the 110th Congress, but failed to reach the Senate floor for a vote.

LEGISLATIVE HISTORY

Last year, the House unanimously passed H.R. 1065, the Nonadmitted and Reinsurance Reform Act of 2007, introduced by Reps. Dennis Moore, D-Kan., and Ginny Brown-Waite, R-Fla. The legislation would modernize the regulation of nonadmitted insurance and reinsurance companies.

On the Senate side, Florida Sens. Mel Martinez, R-Fla., and Bill Nelson, D-Fla., have introduced companion legislation, S. 929. However, Sens. Tim Johnson, D-S.D., and John Sununu, R-N.H., expressed concern that this bill has the potential to slow down their push for an optional federal charter. It is anticipated that similar legislation will be introduced during the 111th Congress.

With the strong bipartisan support of the targeted reform of surplus lines and reinsurance, NAMIC believes that there are other targeted reforms that can be addressed such as agent and company licensing. Currently, insurance agents and companies must obtain a license from each state in which they plan to operate. Licensing requirements vary from state to state, and companies, brokers, and agents must comply with each state’s requirements in order to be licensed. Improvements have been made through state standardization of applications and forms, but many needless state-specific requirements still exist.

In July 2008, H.R. 5611, the National Association of Registered Agents and Brokers Reform Act or NARAB II, unanimously passed the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises by voice vote. The legislation would establish licensing reciprocity for insurance producers that operate in multiple states. At the same time, it would ensure that states retain the authority to regulate marketplace activity and enforce consumer protection laws.

The proposal is a progression from the original NARAB provision that was part of the Gramm-Leach-Bliley legislation enacted in 1999. The original NARAB provision did not go far enough in creating a system that would allow professionally licensed agents to easily offer their services across all jurisdictions. NARAB II deals only with marketplace entry and would not impact the day-to-day state regulation of insurance.

Both pieces of legislation are a good example of a way Congress can have a limited role in helping to streamline and modernize the current regulatory system.

NAMIC POSITION

NAMIC supports legislation to reform surplus lines regulation to significantly increase the level of purchasing efficiency for all those involved in the surplus lines transaction from the insurance companies to the consumers. This legislation would be particularly helpful to those buyers finding limited availability of insurance for their specific risks and to those businesses and individuals located in areas ravaged by natural disasters which have limited the amount of insurance offered by standard insurance companies. Similarly, NAMIC believes that, if crafted properly, a national targeted uniform approach toward licensing could provide for streamlined producer and company licensing while preserving the rights of states to supervise and discipline insurance producers and companies.

CONTACT INFORMATION

For more information please contact Marliss McManus, senior federal affairs director, at (202) 628-1558 or mmcmanus@namic.org.

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Every two years, NAMIC presents their coveted Benjamin Franklin Public Policy Award© to lawmakers who have supported a stronger insurance market at least 75 percent of the time. This is demonstrated based on their support of NAMIC's position on certain roll call votes taken, or being a principal player/sponsor on legislation affected the property/casualty insurance industry, during the previous Congress.