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2004 NAIC Initiatives and Activities

The next two years are critical to the future of state-based insurance regulation. We are keenly aware that reform is needed and that the...
April 10, 2004

Local Regulatory Oversight Must Be Maintained

By Ernst N. Csiszar
National Association of Insurance Commissioners

The next two years are critical to the future of state-based insurance regulation.  We are keenly aware that reform is needed and that the House of Representatives within the United States Congress is preparing to introduce federal preemptive legislation with respect to a number of items on the reform agenda.  These include market conduct, agent and company licensing, rate and form regulation and some form of industry representation at the federal level.  We anticipate working with members of the United States Congress in this effort. 

As I stated during my testimony before the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprise, I believe that a system of localized regulatory oversight should be and must be maintained.  For the time being, it would appear, that any legislative consideration for an optional federal charter is unlikely to take place.  We are pleased to see this for we believe that the development of such a charter would in fact eviscerate the state-based system.

There are many reasons why the creation of a new federal regulatory system would be damaging to the future of the industry. 

Such a system would be costly.  Industry estimates the cost of a federal charter system ranges from $800 billion and $1.5 trillion to put in place and operate. It is also likely to turn insurance into another social program.  Experience with the federally administered crop and flood insurance programs certainly provide a healthy basis for such skepticism.  As banks experienced with the federal Community Reinvestment Act, a federally based insurance regulatory system would also likely pass additional public costs to the private sector.  Moreover, there are lingering questions about how a federal system would handle the apportionment of premium taxes as well as provide the security to policyholders that our state-based guarantee fund system currently provides. 

In the end, consumer complaints and inquiries would clearly still evidence themselves at the local level.  It is difficult to see how Washington could handle the millions of consumer problems that state regulators currently handle and are characteristic of the insurance product and sale process.  For that matter, how would Washington respond to the millions of dollars of policyholder funds that are currently recovered on behalf of consumers, by state-based regulators?

We know that consumer problems occur at the local level and that states can respond and deliver at the local level.  Response time at the federal level however, tends to be lengthy, delayed or unanswered.  During 2001 alone, state insurance departments handled approximately 3.6 million consumer inquiries and complaints regarding insurance coverages, policies and related issues.  Many of these issues were successfully resolved with our assistance.

NAIC Actions

The National Association of Insurance Commissioners (NAIC) has worked the past several years and is committed to regulatory uniformity and modernization.  To further our efforts toward modernization, this year, the NAIC has appointed Commissioner Walter Bell (Alabama) to lead the newly created Speed-To-Market Task Force to serve as the NAIC's focal point for modernization of the insurance product filing and review processes.  The Task Force will monitor the development and implementation of the Interstate Insurance Product Regulation Compact and related development of national product standards.  The task force will also monitor and assist with the implementation of the various speed-to-market operational efficiencies that have been developed in recent years.

The Interstate Product Regulation Compact establishes a mechanism for developing uniform national product standards for life insurance, annuities, disability income insurance, and long-term care insurance products.  It also creates a single point to file products for regulatory review and, if necessary, approval.  In the event of approval, an insurer would be able to sell its products in multiple states without separate filings in each state.  The recently formed Interstate Compact National Standards Working Group is working to draft national standards for insurance products that are eligible for inclusion in the Interstate Insurance Product Regulation Compact.  We expect to have the national product standards in place by year-end.

The NAIC's System for Electronic Rate and Form Filing (SERFF) offers the greatest potential for speed-to-market for insurance products.  As of December 31, all 50 states, the District of Columbia, Puerto Rico and over 1,000 insurers are SERFF enabled.  The growth of SERFF was impressive in 2002, with the number of filings submitted totaling 25,528, a 691% increase over 2001.  In 2003, over 75,000 filings were submitted through SERFF, a 300% increase over 2002.  In January 2004, over 8,200 filings were received a 100% increase over January 2003.  In February 2004 over 10,000 filings were received through SERFF. The average product filing turnaround time is 17 days for SERFF filings, a true speed-to-market tool!

GLBA Successes

There are over three million insurance producers licensed in this country with over one million nonresident licenses in place.  In addition, states managed 15 million appointments and generated over $1.5 billion in revenues.  So far, the states and NAIC have enjoyed great success in meeting the thresholds contained in the GLBA.  In addition to the states' work on licensing reciprocity, work has been ongoing on true uniformity.  To date, the NAIC's Producer Licensing Model Act has been enacted in 49 states.  While we have achieved reciprocity, we are committed to pursue efforts to gain uniformity.

Tremendous strides have been made in recent years to simplify the company admissions process and to make it more uniform from state to state.  The Uniform Certificate of Authority Application (UCAA) process is designed to allow insurers to file copies of the same application for admission in numerous states.  To date, all states are accepting the uniform applications.  Each state still performs its own independent review of each application, however the need to file different applications, in different formats has been eliminated.  While this progress is admirable, much work still needs to be done such as the consideration of automating the UCAA submission process as well as the development of uniform review processes and procedures.

The NAIC has also been reviewing the issues surrounding market conduct examinations and in September 2003, established market analysis, interstate collaborations and uniform exam procedures as goals for implementation for 2004.  To date, the market conduct handbook has been adopted by the NAIC and we are currently investigating adoption of the NCOIL Market Conduct Surveillance Model Law

While the NAIC pursues its modernization agenda, we must and will continue to respond to emerging challenges for consumers. In light of globalization and financial services convergence, NAIC members must continue to work more closely with our regulatory colleagues both in Washington, D.C. and abroad.  The work of the International Association of Insurance Supervisors (IAIS) has assumed much greater importance in recent years, as countries are expected to conform to the IAIS Core Principles for Insurance Supervision. 

Trade issues are requiring state insurance regulators to work more closely with the U.S. Trade Representative and the U.S. Department of Commerce.  Tax issues call for us to work more closely with the U.S. Treasury. Likewise, the emergence of financial holding companies after the enactment of GLBA has made coordination with our federal banking and securities colleagues absolutely necessary. 

As we are called upon to provide our expertise during the U.S. Congress' review of insurance issues, we are committed to the reform process and look forward to working with members of Congress to achieve these goals.

Ernst N. Csiszar is President of the National Association of Insurance Commissioners and Director of Insurance for the state of South Carolina.

This article originally appeared in the April 2004 PIA Connection.