A. NAIFA supports insurance regulatory reform and modernization that helps American families and businesses achieve financial security. Such proposals should promote consumer prote ction, streamline agent licensing, improve product speed to market, improve the competitiveness of the insurance industry, and lower costs. To that end, NAIFA is firmly committed to supporting and improving state-based regulation and is open to making changes at the federal level if those changes will help agents and companies better serve consumers. That is why NAIFA supports a dual federal and state track approach to achieving insurance regulatory reform. At the state level, NAIFA is working closely with state insurance regulators and organizations to address agent licensing issues and to bring new insurance products to market faster. At the federal level, NAIFA has announced its conditional support for an optional federal insurance regulator provided that it allows for true agent choice, enhanced consumer protections, preserves state regulation of insurance for those that do not choose the federal system, and creates a federal office of insurance expertise. NAIFA has not endorsed the National Insurance Act, better known as the optional federal charter proposal in Congress. NAIFA has endorsed one federal bill entitled the National Association of Registered Agents and Brokers Reform Act (NARAB II). NARAB II is a federal proposal to improve state-based reciprocal licensing inefficiencies without creating a federal regulator. NAIFA has also endorsed legislation, known as the Insurance Information Act, which would create an Office of Insurance Information within the U.S. Department of Treasury, but would not create a federal regulator.

A. NAIFA has seven major concerns. First, agents doing business in multiple states are often subjected to different, sometimes rigorous and expensive licensing requirements when seeking licenses in states other than their “home” state. Second, new insurance products sometimes take years to be approved in all states, and in some cases are never approved in all states. Third, state insurance departments do not coordinate regularly with state and federal securities regulators. The lack of coordination often creates regulatory headaches for NAIFA members that sell hybrid regulated products such as variable annuities. Fourth, insurance companies are subjected to audits by many states that are costly and duplicative and those costs are often passed on to consumers. Fifth, the insurance industry is the only financial services industry that lacks a federal of body of expertise in Washington to weigh in during inner circle conversations when policy is proposed that will impact the industry on a national or international scale. Sixth, the complexity of the state system makes it difficult to efficiently address issues that give the industry as a whole a black eye. Seventh, while not necessarily critical to agents, U.S. insurers are facing negative competitive pressures vis-à-vis foreign insurers, both here in the U.S and abroad.

A. In a recent poll of NAIFA members, 46% of NAIFA members report being licensed in 2-5 states; 16% are licensed in 6-9 states; 16% are licensed in 10 or more states.

Frequently, when an existing client moves, agents would like to continue serving that client with life, health and P/C products. To do so, agents must be licensed in the client’s new state. Each state license carries with it its own cost and compliance obligations. NAIFA seeks to reduce both burdens.

A. Agents typically like to make the same products available to their clients regardless of the state in which they live, but, not all states approve all products.

Sometimes it takes months, or even years to get new products approved in all states. Competing products offered by securities firms and banks typically take only a fraction of the time to be approved for sale.

A. It should be. In the ever competitive world we live in, the cost of doing business looms large. Subjecting insurers to multiple state solvency and other exams—while noble in purpose—adds a great deal of cost to doing business. The money spent on complying with multiple state examinations might better be put to improving the value of insurance products offered to consumers. No doubt agents could suggest other ways to put the savings to work.

A. Aside from the patriotic interest of creating strong companies that can compete internationally, strong insurance companies at home traditionally translate into more agent opportunities to represent those companies. This is not a short term proposition and may not translate immediately into agent income, but over the long run could mean more opportunity for U.S. based agents.

A. There is no doubt that the Comptroller of the Currency and the Federal Reserve are very powerful voices when speaking with the Congress on issues impacting on the banking industry. The Securities and Exchange Commission occupies the same stature with Congress when speaking on issues affecting the securities business. The insurance industry lacks a similar credible voice of expertise in the inner circle of the federal government and has instead relied historically on the collective voices of state insurance regulators and the industry’s trade associations like NAIFA when lobbying federal policy makers on insurance matters that are national in scope. This absence has been noticeable as Congress and the Administration have been working to resolve the U.S. financial crisis. The absence may be equally noticeable if the industry faces an anticipated major tax and budget fight in 2009-10.

NAIFA believes that the establishment of an insurance regulator or office of insurance expertise, that is part of the federal government establishment, could translate into better informed policy federal policy recommendations that impact the insurance industry and NAIFA members.

A. There are two prime examples. The Interstate Insurance Product Regulation Compact and National Insurance Producers Registry (NIPR) are both state-based reform initiatives that impact both agents and companies. The product compact has been approved in 32 states and Puerto Rico and is pending in several other states. Life insurance products filed with and approved by the interstate compact commission can be sold in all of the compacting states. NAIFA and AHIA are the agents’ representatives on the Compact’s Industry Advisory Committee. The National Insurance Producer Registry was formed by the NAIC and offers expedited online agent licensing processes for many states. NAIFA serves on the NIPR Board. While the Registry’s online non-resident licensing process is reciprocal, it does not make state laws uniform. NAIFA seeks uniformity.

A. While NAIFA is extremely pleased to have been a moving party in the creation of the Interstate Compact, but only 32 states and Puerto Rico have approved it. Despite the best efforts of many dedicated state insurance regulators, it has not been approved in all states and territories. Unless we get all jurisdictions to join, the compact does not achieve NAIFA’s goal of uniformity and speed-to-market in all jurisdictions. The same comment can be made about NIPR. Nevertheless, NAIFA will continue to work on and support both of these initiatives.

A. Currently the Registry collects data only from states, but the NAIC is hoping to expand the database to include data from other sources like FINRA.

A. NARAB II is an example of incremental state reform that would be forced on the states through a federal law. In September 2008. it passed the U.S. House of Representatives as the National Association of Registered Agents and Brokers Reform Act, but due to lack of time and more pressing legislative priorities, it was not taken up by the Senate before the end of the 110th Congress. NARAB II is expected to be reintroduced as new bill for considering by the 111th Congress that begins in January 2009.

The concept of NARAB was originally included in the Financial Services Modernization Act, known as the Gramm-Leach-Bliley Act (GLBA), which was enacted in 1999. The original NARAB would have established a licensure clearing house if a majority of the states did not enact reciprocity legislation within three years after the enactment of GLBA. Because the states determined that the threshold was satisfied, the clearing house was never established. However, issues burdening the ability for both individuals and agencies to obtain licenses on a multi-state basis remain, and the intent of the new effort – dubbed “NARAB II” – is to move forward with actually establishing the clearing house for interstate licensure.

The NARAB II proposal would allow any agent licensed in his/her home state to join NARAB and then be held to a single non-resident licensing and continuing education standard in every non-home state. NAIFA is supporting NARAB II because there is no state-initiated agent licensing interstate compact effort going on that is comparable in uniformity to the interstate compact on product approval. Under the NARAB II proposal there would not be a federal regulator, but instead a governing board made up of state regulators, agent representatives and company representatives.

A. While there are individuals and organizations that support the federal government taking over all regulation of insurance, there are no proposals in Congress to do so. There is a proposal called the National Insurance Act introduced in both the House and Senate that would create a comprehensive federal insurance regulator within the U.S. Treasury Department. The National Insurance Act would allow agents and companies to choose their regulator – either federal or state. The concept, known as the optional federal charter (OFC), is similar to the dual banking structure that has been in existence for about 150 years. NAIFA’s National Council voted to conditionally support the concept of an OFC, but not necessarily the National Insurance Act as it is currently written. Any legislation would have to meet NAIFA’s themes and conditions of support for an OFC.

A. The Blueprint is a broad-ranging proposal that suggests a fundamental re-construction of the entire federal regulatory structure impacting every aspect of financial enterprise. The Blueprint envisions offering insurance companies and agents the option of being regulated at the federal or state level. Long-term, the Blueprint recommends the creation of an optional federal insurance charter, but recognizes that the creation of an OFC is a long-term goal and therefore also recommends that “as an intermediate step, Congress establish a federal Office of Insurance Oversight within the Treasury to establish a federal presence in insurance for international and regulatory issues.”

A. All the major proposals are an improvement over conditions prevailing in 1999:

• National Insurance Producers Registry (NIPR) - Every state participates in at least one of the agent licensing processes offered by NIPR and most states allow NIPR to be used to obtain new or to renew non-resident licenses.  While this non-resident licensing process is reciprocal, it is not uniform, although access to these systems in participating states eases agent licensing in those states.

• NARAB II - NARAB II would preempt state law and require the states to recognize a new National Association of Registered Agents and Brokers (NARAB) to serve as a national clearinghouse for interstate licensure.  Any producer (individual or agency) licensed in their home state could choose to join NARAB and be held to a single non-resident licensing and continuing education standard for every state outside of their home state. The NARAB standards would be determined by a board made up of insurance commissioners, producers and carriers. Non-home states would be prohibited from imposing any other licensing or other qualifications to do business requirements.

• National Insurance Act - If the National Insurance Act were adopted, agents reportedly would have some of the same options as companies—they could remain state licensed or opt for a federal license. If opting for a federal license, that license would enable the agent to conduct business in any state. NAIFA is working to ensure that agents have the same choice as companies and would not be required by contract to be licensed federally or at the state level.

A. No. The National Association of Registered Agents and Brokers Reform Act was introduced in the House of Representatives on March 13, 2008. The bill, H.R. 5611 has strong bipartisan support and was passed by the House of Representatives on September 17, 2008. Due to a lack of time and other more pressing legislative priorities in the Senate, NARAB II did not become law in the 110th Congress, but it is expected there will be further legislative action in the next Congress.

A. First, NARAB II does not create a federal regulator for insurance. Instead, the legislation creates a governing board made up of insurance commissioners, producers and carriers. The NARAB fees and standards would be determined by the governing board. As a second layer of consumer protection, non-resident states would continue to have the power to discipline NARAB-licensed producers and to suspend their licenses. The NARAB Board would be required to coordinate disciplinary efforts with the states and establish a consumer complaints office. The NARAB Board can seek a court order if necessary to enforce its disciplinary actions.

A. No. Membership in NARAB is completely optional. Any producer (individual or agency) licensed in their home state could choose to join NARAB.

A. Agents joining NARAB would be held to a single licensing and continuing education standard for every non-resident state in which they choose to do business. Through NARAB, any NAIFA member would be able to obtain a license to act as a producer in any state other than their home state by paying the required state licensure fees, submitting to a criminal background check, and meeting other licensing requirements established by the NARAB governing board. Non-home states would be prohibited from imposing any other licensing requirements or other qualifications to do business. NARAB members would be governed by NARAB’s continuing education standards, and no state other than a producer’s home state could impose CE requirements on NARAB members.

A. NAIFA would be open to exploring the idea.

A. The basic concept in the term optional federal charter calls for passage of a federal law that would give life and property/casualty insurance carriers, individual agents and agencies the opportunity to choose an alternate federal system of insurance regulation. The concept would not preempt state law for those that choose to remain state-licensed. For those that choose federal regulation, most (but not all) current state laws and regulations would no longer apply. For those that opt to remain state regulated, conceptually there would be no change in how they are regulated.

A. Yes. Legislation to create an OFC was introduced in the both the House and Senate in 2006, and modified versions were introduced in both chambers in 2007. The bills, S.40 and H.R.3200, are both known as the National Insurance Act of 2007. As this description implies, the actual OFC legislation is a work in progress that has evolved over time and likely will continue to evolve.

A. NAIFA supports the concept of an optional federal charter, but has not endorsed any specific federal legislation to establish an OFC. On September 10, 2008, NAIFA’s National Council voted to support the concept of an OFC only if the final legislation satisfies certain conditions. Those conditions are true agent choice, enhanced consumer protections, the preservation of state regulation of insurance for those that do not choose the federal system, and the creation a federal office of insurance expertise.

A. The National Insurance Act aims to give insurance agents the choice to remain licensed in the state regulatory system or opt for a national, federal license that would be valid in all the states, the District of Columbia and five U.S. territories. With a federal license, the agent could sell insurance in any state as long as the insurer is also licensed to do business in that state. For example, a federally licensed agent doing business in Virginia would be eligible to sell on behalf of a Virginia state licensed insurer. For agents who choose to remain state licensed, they could still sell insurance on behalf of any insurer licensed to do business in their state. So, a Virginia state licensed agent would be eligible to sell for any federally licensed insurer because that federal license is valid in all states.

A. The same thing that would happen today if a state regulator disallowed a producer’s primary product for sale, either for cause or arbitrarily. OFC supporters believe that federal regulators have historically been less arbitrary in product approval in the banking and securities world and would be inclined in that direction when evaluating insurance products.

A. A. The National Insurance Act calls for insurance carriers to continue paying insurance premium taxes to the state governments. The Act is silent on the disposition of licensing and other fees for agents and activities that transfer to the federal regulator. The Act contemplates that the Office of National Insurance would be funded by fees paid by carriers and agents.

A. Not necessarily. Because there is considerable regulatory duplication in the current system, replacing it with one may reduce company costs to the point where companies can break even or even do a little better.

A. In an OFC framework, a carrier filing a product with the federal regulator could sell an approved product nationwide. Under the state system, carriers either have to file products for approval separately in every state in which they wish to offer the product or use the interstate compact (for those states that have joined the compact and where the applicable product standards have been developed)

A. For agents who work primarily for a single carrier, the National Insurance Act requires federally licensed insurers (called National Insurers) to supervise the activities of their federally licensed agents. In addition, federally licensed insurance agencies (called National Agencies) would be required to supervise their employees engaged in the sale of insurance.

A. While the National Insurance Act does preempt most state insurance laws and regulations for federally licensed companies and agents who opt to become federally regulated, for the first five years carrier solvency standards would not change. The National Insurance Act calls for retaining current state solvency standards and guaranty funds as they exist today. After five years, the Congress and the federal regulator are free to look at other options. There is no mandate to change standards after five years; just the option to look.

A. The proposal requires federally charted insurers to participate in all state guaranty funds unless a state guaranty fund is not deemed “qualified” by the National Commissioner created by the National Insurance Act. In the case of a non-qualified state fund, the federally-registered insurers would be required to participate in a new federal guaranty fund.

A. Yes. The National Insurance Act would create an independent federal regulator called the Office of National Insurance (ONI). It would be housed in the U. S. Department of Treasury and headed by a Commissioner appointed by the president and subject to confirmation by the U.S. Senate. The ONI framework is modeled somewhat on the Office of the Comptroller of the Currency, which is an independent banking regulator housed in the U.S. Department of the Treasury.

A. The ONI would have the authority to determine licensing fees and continuing education standards for nationally licensed agents. The ONI would not have authority over agents who choose to remain state licensed. The ONI would be responsible for establishing the supervision standards of National Insurers and National Agencies and would oversee the sales and marketing practices of federally licensed producers who are not employed by a National Insurer or National Agency, and who do not work primarily for a federally licensed insurer.

A. The National Insurance Act calls for the creation of a Division of Consumer Protection and a series of regional offices. The Act also would create the Office of Ombudsman. The office would operate with just one set of operational standards rather than different standards for each state.

A. Health insurance is not covered in the bill. The National Insurance Act would allow for the optional federal regulation of life, annuities, disability income, LTC and property casualty insurance products.

A. The National Insurance Act prescribes that ONI-established supervision standards would not conflict with the rules adopted by any self-regulatory organization approved by the SEC (including, but not limited to, FINRA). Having said that, the legislative proposal allows for the establishment of new insurance self-regulatory organizations (SROs) for National Insurers, National Agencies and federally licensed insurance producers. Congress could address the issue at a later time. Some OFC proponents believe that Congress might eventually conclude that the ONI should have jurisdiction over all insurance products, traditional and securities-based.

A. With Congress anything is possible but there has been little discussion in Congress of such an idea. OFC proponents are quick to remind critics that the dual banking system has been in existence for approximately 150 years. At the same time they recognize that the Treasury Department’s Blueprint proposal calls for ultimately bringing all financial institutions under some federal control.

A. The Blueprint is the Treasury Department’s latest iteration of a long standing vision of rational regulation of all financial institutions including insurance companies. On behalf of the President, the Treasury Department is unofficially in charge of the U.S. economy. The Department is ever mindful of the role that regulation plays in fostering a strong economy. One way or another, the Blueprint has been in the works for decades, although the timing of the current report seems linked to the rapid deterioration of the economy today. NAIFA has submitted to the Treasury Department its views on the subject of insurance regulation as far back as the Reagan Administration. In the case of the Blueprint, NAIFA submitted comments to Treasury in November 2007.

A. The authors of the Blueprint themselves believe that even under the most optimistic of scenarios, it will likely take many years to realize the “Blueprint’s” long-term vision. That’s why the authors outlined three phases of changes: short-term, intermediate steps, and the ultimate vision.

A. Briefly, the three phases in the Blueprint are as follows;

• Short-term - Creates a federal Office of Insurance Oversight (OIO) within the Department of Treasury. The office would establish a presence in insurance at the federal and international level and could become the lead federal expert on insurance matters. On July 9, 2008 the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises advanced the Insurance Information Act of 2008 that, if ultimately enacted into law, would create and Office of Insurance Information (OII) within the Treasury Department and accomplish this goal.

• Intermediate Steps - Evolve the Federal Office of Insurance Oversight into the Office of National Insurance (ONI) within the Department of the Treasury. The ONI would be similar to the Comptroller of the Currency—but for insurance. The ONI would operate an optional federal regulatory system for property/casualty and life insurance companies and agents that wish to be federally regulated. See National Insurance Act FAQs above for a description of the OFC concept.

• The Ultimate Vision - The Blueprint would create three “super’ regulators in the future that would regulate all financial institutions. The three regulators would regulate across industry lines. There would no longer be separate regulators for securities, banking, credit unions, broker dealers etc, etc.

  1. The Market Stability Regulator would oversee market stability that impacts the economy. All financial institutions would be under the Market Stability Regulator’s control.
  2. The Prudential Financial Regulator (no, not the insurance company) would control market discipline caused by government guarantee. Normally you think of banks and FDIC, but this could include insurance companies that are federally chartered and go into a federal insurance guarantee fund.
  3. The Business Conduct Regulator would regulate consumer protection by overseeing business practice standards protecting both individuals and businesses. This could include creating standard disclosures so consumers and businesses could compare an insurance policy’s pricing and coverage provisions.

There are many more details to the Blueprint that are not covered by this FAQ document, but many of the details are the same or similar to the provisions applying to the National Insurance Act.

A. On September 17, 2008, the House of Representatives passed H.R. 5611, the NARAB II legislation but due to lack of time and more pressing Congressional priorities, the Senate will not consider NARAB II before the 110th Congress adjourns. It is anticipated that NARAB II will be reintroduced in the 111th Congress for further Congressional consideration and action.

As for OFC, prior to the market turmoil it was anticipated the House and Senate would continue to hold hearings on the issue but there were competing views on the outlook for Congressional action. Given the current U.S. financial crisis and anticipated regulatory changes to all U.S. financial institutions, the time table and scope of the bill could be substantially affected in a way that is yet to be determined.

A. Likely. Regardless of who is in charge after the elections, the overhaul of the regulation of all U.S. financial institutions will be a major priority for the next Congress. A Democratic sweep could bring a higher chance that mandatory federal regulation (as opposed to an optional federal charter) could move to the foreground of consideration. That last happened during the Carter Administration. Divided government reduces the chances of mandatory proposals, but would increase the chances that aspects of the Treasury Department proposal would be at least be discussed.

A. Possibly. A number of influential legislators on both sides of Congress favor dropping property/casualty insurance from the National Insurance Act because, unlike life insurance products, property/casualty products are impacted by regional and local factors. Politically a life only bill would reduce opposition in most quarters, but would produce one new group of potent opponents—large property/casualty insurers.