Accepting The Challenge: Redefining State Regulation Now

Accepting The Challenge: Redefining State Regulation Now


The National Association of Mutual Insurance Companies (NAMIC) favors the enactment of  more uniform insurance regulatory standards by every state as the last, best hope for maintaining and improving the existing system of sovereign state insurance regulation. The threat to state regulation is so significant today that an unprecedented partnership of industry leaders, regulators and state policymakers is needed to put the necessary reforms in place.

State regulation is imperiled by the National Association of Registered Agents and Brokers (NARAB) provision of the Gramm-Leach-Bliley (GLB) Act. Despite reasserting the primacy of state regulation, GLB still offers federal oversight of producer licensing as an alternative preferable to the different laws of each state. But GLB also allows for the preemption of NARAB if 29 states pass uniform producer laws by November 2002. While producer licensing is only one part of a complex industry, it is not difficult to imagine how failure to respond to the NARAB challenge by industry, regulators and legislators would be viewed as a serious weakness of the present system, adding credibility to arguments for federal regulation.

The National Association of Insurance Commissioners (NAIC) also recognizes the scope of the challenge to state sovereignty. Its Statement of Intent is an ambitious and necessary effort to effect major comprehensive reform of insurance regulation. Seven of the nine regulatory practices identified for redefinition by NAMIC members, the basis of this report, are also included in the NAIC initiative.

While NAMIC endorses regulatory procedures that are more uniform, support for state sovereignty and the authority of states to regulate insurance continues. As used in this report, "uniformity" refers to regulatory procedures applied evenly, leaving undisturbed the authority of state regulators to enforce the law in their state. Regulators should be closest to the companies they oversee and to the consumers they serve. In practice, uniform insurance regulation administered by the states will give insurers more tools to maximize their efficiency and will simplify regulatory enforcement. Consumers will be better served both by insurers and regulators, a necessary result in the era of financial services modernization.

With nearly 1,300 member companies in all, writing more than 38 percent of the property-casualty premium in the industry, NAMIC offers a unique perspective on the need for uniformity. NAMIC member companies range from some of the largest financial services providers in the world to small farm mutual companies doing business in one county. Concentrating reforms on uniform procedural efficiencies can help companies of all sizes compete even more effectively.

Large carriers would spend fewer resources meeting inconsistent compliance requirements, allowing for more attention to product development. Single state and small regional companies may encounter unique regulatory situations and each regulator would have flexibility to respond accordingly. And as procedural barriers are lowered, these insurers will have greater opportunities to expand into new territories.  

Anticipating passage of the GLB Act, the NAMIC Board of Directors last September directed NAMIC staff to begin looking into the possibilities for greater uniformity and to make specific recommendations on how certain state regulatory practices could be redefined and improved.

A questionnaire was developed and mailed to NAMIC member companies in December. It asked respondents to react to 14 issues that either described certain regulatory practices or public policy issues that were important to their organizations. 

NAMIC member companies identified eight regulatory practices that should be redefined through enactment of uniform insurance regulatory standards in every state. They are:

  • Producer licensing;
  • Company licensing;
  • Rate and form requirements;
  • Commercial rate deregulation;
  • Electronic commerce requirements;
  • Desk audit funding;
  • Annual statement filings; and
  • Financial examinations.

A ninth practice -- market conduct examinations - was added to the report due to the high level of interest expressed by some member companies, who helped support the market conduct study being conducted by PricewaterhouseCoopers on behalf of the National Conference of Insurance Legislators (NCOIL).

Pursuing uniform insurance regulatory standards through the present system is difficult due to its inherent structural weaknesses. It takes a long time to move a national agenda through the NAIC. Then, the legislature of each state must determine if it will adopt the NAIC model legislation. When this process fails to move expeditiously to serve consumer needs, it fortifies the call for federal regulation. To meet the needs of the intensely competitive financial services climate which exists today, regulators, legislators and industry alike require a more focused and urgent commitment of attention and resources.

Beginning immediately, NAMIC is initiating steps to focus discussion on a specific set of issues for which more uniform  insurance regulatory standards are appropriate, and to build consensus among our industry colleagues, regulators, legislators and other state policymakers to take immediate, positive steps toward achieving major improvements in industry regulation and productivity.

In this Report, NAMIC proposes:

  • A joint regulator-industry-state legislator strategy to enact uniform producer licensing standards;
  • Completion of work by the NAIC on producer licensing processes;
  • Active participation by regulators, industry and state legislators in the NAIC Statement of Intent process;
  • A joint regulator-industry-state legislator agreement to enact other uniformity measures and an improved regulatory framework which preserves state authority; and
  • Streamlined NAIC processes.

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