NAIC Committees Tackle Big Issues at 2008 Annual Meeting

At its 2008 Annual Meeting held earlier this month in Texas, many of the NAIC working groups and committees met to discuss challenges faced and issues dealt with over the past year, and how the NAIC will address challenges in the coming year.

Producer Licensing Working Group
The Executive Committee/Plenary adopted the Priorities of the Producer Licensing Working Group including:

• Clarifications to the Uniform Licensing Standards, which are broken down into the following broad categories:
• Licensing qualifications standards
• Pre-licensing education requirements
• Integrity and personal background checks
• Application for licensure
• The appointment process
• Continuing education requirements
• Limited lines
• Surplus lines

The NAIC has asked NAIFA to support these standards and promote them with our members; therefore you will be receiving these in greater detail in the future.

• Clarification and further guidance on the provision in the Producer Licensing Model Act dealing with commission sharing. The working group explained that Section 13D of the PLMA is clear and it states that any individual or agency can receive commissions, service fees or any valuable consideration without a license as long as doing so does not violate any other state law, such as anti-rebating, and the individual or entity does not sell, solicit or negotiate insurance.

• Adoption of a State Licensing Handbook to give guidance to state insurance departments and regulated entities on how to administer a producer licensing program. The Handbook has been developed over the last year and a half and NAIFA provided substantial input. It is hoped that use of the Handbook will result in greater uniformity among the states.

NARAB Working Group
The NARAB Working Group met and is currently considering preliminary recommendations on several GLBA issues including:

• Enforcing a minimum age requirement for non-resident applicants;
• Requiring foreign corporations to register to do business and requesting proof of foreign corporation registration; and

• Requiring specific subject-matter continuing education based on federal mandates.
• Requiring non-resident applicants to obtain a non-resident general or major lines license prior to the issuance of a surplus lines license;
• Not adopting the major lines of authority of the PLMA; and
• Applying in-state trust account requirements to non-residents.

The goal of the working group is to have all recommendations regarding GLBA reciprocity issues ready for adoption by Executive Committee/Plenary at the 2009 Spring National Meeting.

The Working Group is also considering options and alternatives for business entity licensing with the goal of streamlining such licensing.

NAIFA Staff Contact: For additional information, please contact William R. Anderson, Senior Vice President – State Government Relations.

Interstate Compact

The Interstate Insurance Product Regulation Commission (Compact) held meetings of the Compact’s Management Committee and the full Compact on December 4, 2008. Both NAIFA and AHIA are represented on the Compact’s Industry Advisory Committee.

At the meeting, the rule making process was initiated by the Management Committee for four additional standards which had been developed by the Compact’s Product Standards Committee. These standards, dealing with life insurance policies and deferred variable annuity contracts, will be published for a 60 day comment period, after which they will be considered for final adoption by the Management Committee and full Compact. The Product Standards Committee reported that six new final standards had been adopted in October, 2008, which means 49 standards are now available for use in filing with the Compact. The Committee will continue its initial review of the draft long-term care standards and will now begin work on the group life and annuity standards.

The Compact has been adopted by 32 states and Puerto Rico, and 140 product filings have been approved by the Compact since it became operational in 2007. The Compact plans to do more outreach to industry through its Communications Committee to better publicize the services and benefits available through the Compact, and has met with the Industry Advisory Committee to discuss how to increase the number of product filings made by industry. The Rulemaking Committee is beginning work on the two remaining rules which need to be adopted, and indicated it was aware of industry concerns regarding the “mix and match” rule which could require Compact users to re-file products once the rule’s two year time period expires. Industry has indicated that more companies would use the Compact if these concerns were addressed, and the Rulemaking Committee will be consulting with the Management Committee for guidance on this issue.

Indexed Annuities

The NAIC formed the Indexed Annuities Working Group (reporting to the NAIC Executive Committee) in the fall of 2008 in order to develop the state regulatory response to the SEC’s proposed Rule 151A, which would classify most indexed annuities as securities and bring these products under the regulatory jurisdiction of the SEC and FINRA. The working group drafted a letter to the SEC opposing the adoption of Rule 151A, which was submitted to the SEC by the NAIC last fall. Individual commissioners also submitted their own letters to the SEC opposing the proposed rule. The working group recently initiated a coordinated “data call” to state regulators asking them to identify issues and trends which the regulators feel will impact the fixed annuity marketplace. Responses to the data call are due by January 30, 2009, after which the working group will evaluate whether additional state regulatory action is needed with respect to indexed annuities.

NAIFA has been actively involved on this issue. We have filed detailed comments with the SEC in opposition to Rule 151A, on the basis that indexed annuities should not be classified as securities and to protect the principal that insurance products should be within the regulatory jurisdiction of state insurance regulators. Over 1,000 NAIFA members have filed their own comment letters with the SEC on this issue, and NAIFA has had discussions with the NAIC leadership and other industry groups regarding the appropriate response to the SEC proposal.

Replacements

The NAIC’s Life Insurance and Annuities (A) Committee discussed the issue of predatory practices as it relates to replacements. Specifically, whether recent solvency issues affecting AIG and other insurers are being used with consumers as a reason to suggest replacement of an insurance policy or annuity. The Committee is seeking suggestions from regulators and interested parties on ways to approach the issue. Ron Panneton suggested to the Committee that an obvious first step would to be to ask AIG and other solvency affected insurers whether they have recently experienced any increase in either replacement activity or policyholder inquiries seeking information about a possible replacement. The Committee plans to schedule a conference call in January, 2009 to discuss the issue further and consider approaches to deal with any predatory practices identified.

NAIFA Staff Contact: Bill Anderson, Senior Vice President – State Government Relations, at 703-770-8193 or; Gary Sanders, Vice President – Securities and State Government Relations at 703-770-8192 or; Ron Panneton, Senior Counsel, at 703-770-8187.