A. NAIFA supports insurance regulatory reform and modernization that helps American families and businesses achieve financial security. Such proposals should promote consumer protection, 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 any specific legislation that would create an optional federal charter. NAIFA has endorsed a 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 indexed 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 when 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 Commission and the National Insurance Producers Registry (NIPR) are both state-based reform initiatives that impact both agents and companies. The product compact has been approved in 34 states and Puerto Rico and is pending in several other states. Life insurance, annuity, long-term care, and disability income products filed with and approved by the Interstate Insurance Product Regulation Commission can be sold in all of the compacting states. NAIFA and AHIA are the agents’ representatives on the Commission’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. NAIFA is extremely pleased to have been a moving party in the creation of the Interstate Insurance Product Regulation Commission (which became a Commission after 26 states adopted the Interstate Insurance Product Regulation Compact), but only 34 states and Puerto Rico have approved it – which covers just over 50% of the premium volume for the covered products. 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. On May 21, 2009 NARAB II (H.R. 2554) was reintroduced by Representatives David Scott (D-GA) and Randy Neugebauer (R-TX), along with more than 30 of their bipartisan House colleagues. It is expected to be taken up for House floor action before the fall of 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. In previous years, members of Congress in both the House and Senate introduced a proposal known as the National Insurance Act that would create an alternative comprehensive federal insurance regulator within the U.S. Treasury Department. On April 2, 2009, the latest iteration of this legislation, known as the National Insurance Consumer Protection Act (NICPA) was introduced. NICPA 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. NAIFA’s National Council voted to conditionally support the concept of an OFC, but not necessarily NICPA as it is currently written. Any legislation would have to meet NAIFA’s themes and conditions of support for an OFC.

A. For the insurance industry, the centerpiece of the Administration’s proposal is the creation of a federal Office of National Insurance (ONI) within the Treasury Department, which would be charged with collecting information and representing the US in international discussions related to insurance. The ONI would be responsible for monitoring all aspects of the insurance industry, identifying gaps in regulation that could contribute to future crises, and recommending to the Federal Reserve any insurers that should be supervised as systemically important institutions. This appears to be an expanded version of legislation to create a federal office of insurance information – a proposal that NAIFA supports.

The Administration’s plan also includes six principles for insurance regulation that, presumably, will constitute the foundation for ONI and systemic oversight, as well as any other insurance reform proposals that are deemed necessary to achieve Administration goals. The principles are:

1. Effective systemic risk regulation with respect to insurance.  Insurance is included in the systemic risk oversight portion of the Administration proposal.
   
2. Strong capital standards and an appropriate match between capital allocation and liabilities for all insurance companies.   The proposal acknowledges the need for strong capital standards and appropriate risk management; there is no comment on the current state approach to solvency regulation.
   
3. Meaningful and consistent consumer protection for insurance products and practices.  The proposal notes the wide variations in consumer protections across the states and calls for “enhancing” consumer protections and addressing problems in the current system, including in producer regulation.  It is not clear what this means for current state rules.
   
4. Increased national uniformity through either a federal charter or effective action by the states.  The proposal acknowledges the need for better, more uniform regulation and leaves the door open for consideration of a federal insurance charter and / or using federal pressure to force the states to be uniform in their approach to regulation.
   
5. Improve and broaden the regulation of insurance companies and affiliates on a consolidated basis, including those affiliates outside of the traditional insurance business.  The proposal acknowledges the shortcomings in the states’ approach to insurance holding company regulation and calls for closing the “gaps” that currently exist.  There is no suggestion as to how this might be done, but could be addressed by the creation of a systemic risk regulator.
   
6. International coordination.  The proposal recognizes the need to improve the US approach internationally, both in terms of policymaking and trade.  ONI would be tasked to take the lead on international regulatory issues and given authority to enter into international agreements.
   
   

A. The concept of a systemic risk regulator is to create a new federal watchdog charged with looking across traditional jurisdictional barriers to monitor systemically significant institutions and to identify emerging risk and regulatory gaps that could result in economic turmoil. There is a tremendous amount of debate about the creation of such a regulator/watchdog and who should serve in that role. The Obama Administration has proposed the Chairman of the Federal Reserve serve as the systemic risk regulator. A Financial Services Advisory Council made of the various federal regulators from the banking and securities sectors would work with the Chairman to address risk to the system. For insurance, since there is not a federal regulator, the Obama Administration envisions the Office of National Insurance advising the FSAC on insurance matters.

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 Consumer Protection Act - If NICPA 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 passed the House of Representatives on September 17, 2008 but 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. On May 21, 2009 NARAB II (H.R. 2554) was reintroduced by Representatives David Scott (D-GA) and Randy Neugebauer (R-TX), along with more than 30 of their bipartisan House colleagues. It is expected to be taken up for House floor action before the fall of 2009. NAIFA is also working with industry partners to pursue introduction of a companion NARAB II in the U.S. Senate.

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 a NARAB membership fee, the required state licensure fees (which would be facilitated by NARAB), submitting to a federal 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. 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 known as the National Insurance Act was introduced in the both the House and Senate in 2006, and modified versions were introduced in both chambers in 2007.

On April 2, 2008, the latest iteration of OFC legislation—the National Insurance Consumer Protection Act (NICPA)—was introduced in the House of Representatives. NICPA (or H.R. 1880) by Reps. Melissa Bean (D-IL) and Ed Royce (R_CA) and is similar in most regards to the National Insurance Act, but contains enhanced consumer protection provisions, and addresses many of the issues raised as the result of the current economic crisis. Similar legislation is expected to be introduced in the Senate by Sen. Tim Johnson (D-SD).

A. Not in its current form. 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. NICPA goes along way to satisfy many of NAIFA’s conditions, but we continue to work with the bill’s sponsors to address some outstanding concerns.

A. NAIFA’s Themes and Conditions of Support for an Optional Federal Charter can be viewed at: http://www.naifa.org/advocacy/irr/documents/themesandconditions.pdf

A. NICPA 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. The bill, however, does not include language to prohibit a company from requiring an agent to follow the company’s choice point of licensure. NAIFA hopes to resolve this issue. In concept however, with a federal license, under NICPA 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. NICPA 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 an Office of National Insurance would be funded by fees paid by carriers and agents.

A. No. NICPA would create a federal insurance regulator and call it an Office of National Insurance. The Obama proposal uses the same name but the function of the Office would be a federal information source and not a regulator of insurance.

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 Consumer Protection 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. NICPA does not set forth specific solvency standards, but it does give the federal insurance regulator created by this bill extensive authority to set standards and regulate solvency.

A. The bill would create a National Insurance Guaranty Corporation, a federal guaranty association that would mirror the existing state guaranty association structure. Payments to this federal guaranty association shall be made in accordance with the NAIC Life and Health Insurance Guaranty Association Model Act and the Post-Assessment Property and Liability Insurance Guaranty Model act. Like the current process in the states, assessments will be levied on member-insurers on an as-needed basis. In addition, a national insurer is also required to participate in a state guaranty association to the extent the insurer sells coverage in the state.

A. Yes. The National Insurance Consumer Protection 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:

• oversee the organization, incorporation, operation, regulation, and supervision of national insurers and national agencies;
• issue charters and licenses for national insurers and national agencies;
• license insurance producers;
• issue regulations and supervise national insurers, national agencies and nationally-licensed producers;
• place a national insurer into receivership for the purposes of rehabilitation or liquidation provided certain grounds are met; and
• revoke or restrict the federal license of national insurers and agencies if the Commissioner determines that a national insurer or agency has engage in hazardous conduct, is in poor financial condition, or has violated any laws;
• revoke licenses of nationally-licensed producers if a producer has violated laws or regulations, engaged in fraud, provided untrue or misleading information on the producer’s license application, or demonstrated incompetence, untrustworthiness or financial irresponsibility as a producer.

A. NICPA calls for the creation of a Division of Consumer Affairs within the ONI, headed by a director appointed by the Commissioner. The bill would also create brick and mortar offices in every state, as well as a centralized call center and internet access to assist consumers. Federally regulated insurers and agencies will be required to establish policies and procedures in accordance with ONI regulations to address consumer complaints. Also, due to language recommended by NAIFA, NICPA also requires the Division of Consumer Affairs to be accountable in resolving complaints by reporting annually to Congress on the number of complaints received versus the number resolved.

A. Health insurance is generally not covered in the bill. NICPA would allow for the optional federal regulation of life insurance, annuities, disability income, long-term care insurance, property and casualty insurance, and “supplemental health insurance” products. Supplemental health insurance is a group or individual policy that provides coverage for hospital, medical, or surgical benefits. The legislation makes clear that it is separate and distinct from comprehensive health or medical insurance.

It should be noted that the bill limits the chartering of national insurers and national agencies to life and property/casualty lines of insurance. However, the bill does not limit the lines of insurance that national producers can sell, solicit, and negotiate. Therefore a nationally licensed agent who sells health insurance as a percentage of his/her business would be able to sell health insurance with the national license and would not be required to obtain a separate state license. The producer, however, would be limited to only selling the health insurance products approved in the state in which he/she is selling the product.

A. The National Insurance Consumer Protection 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 currently there is no discussion by Congress or the Administration to replace state regulation of insurance. In light of the market crisis, it is possible that certainly systemically significant insurance companies would be required to be federally regulated; but the option would remain for the remainder of the industry, including agents.

A. Building on years of Congressional hearings on insurance regulatory reform and the Bush Administration Treasury Department’s recommendation to create an Office of Insurance Oversight, on April 17, 2008 Chairman Paul Kanjorski (D-PA) of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises introduced the Insurance Information Act of 2008. The proposal calls for the creation of an Office of Insurance Information (OII) that would be housed within the Treasury Department. The OII would collect and analyze information on the insurance industry and would advise the Secretary of the Treasury on domestic and international insurance policy issues. The bill was approved by the U.S. House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises on July 9, 2008. Due to pressing legislative priorities associated with the market crisis, the bill was not taken up.

On May 21, 2009 Chairman Kanjorski reintroduced legislation to create a federal Office of Insurance Information (OII) within the U.S. Department of Treasury. The bill, H.R.2609, is called the Insurance Information Act of 2009 and has the support of five original cosponsors -- all of whom serve on the Capital Markets Subcommittee: Rep. Melissa Bean (D-IL), Rep. Judy Biggert (R-IL), Rep. Mike Capuano (MA-8), Rep. Dennis Moore (KS-3), Rep. Ed Royce (CA-40), and Rep. David Scott (D-GA).

On June 17, 2009 the Obama Administration’s released its proposal for regulatory reform. For the insurance industry, the centerpiece of the proposal is a call for the creation of a federal Office of National Insurance (ONI) within the Treasury Department, which would be charged with collecting information and representing the US in international discussions related to insurance. The ONI would be responsible for monitoring all aspects of the insurance industry, identifying gaps in regulation that could contribute to future crises, and recommending to the Federal Reserve any insurers that should be supervised as systemically important institutions. This appears to be an expanded version of legislation to create a federal office of insurance information.

A. No. NICPA would create a federal insurance regulator and call it an Office of National Insurance. The Obama proposal uses the same name but the function of the Office would be a federal information source and not a regulator of insurance.

A. Yes. In early 2008, NAIFA leaders undertook an exhaustive study of the various proposals to reform the regulation of insurance. During that review, it became clear that there is a fundamental lack of understanding at the federal level regarding issues that impact insurance agents and financial advisors and the insurance industry on a national and international scale. Currently there are 14 federal agencies that have a role in regulating insurance, and yet there is no central body of expertise at the federal level to provide advice and council to the Administration and Congress on policy matters impacting the insurance industry.

In September 2008, NAIFA sent a letter to the leadership of the House of Representatives that urged the passage of the Insurance Information Act. NAIFA believes that the market situation further highlights the need for an Office of Insurance expertise and many Members of Congress and the Administration have expressed support for such an office.

A. No. The OII would gather data from the information already collected from state insurance departments. Only systemically significant insurance companies would have additional data collection requirements imposed on them directly from the OII.

A. On June 17, 2009 the Obama Administration released its highly anticipated outline for financial services regulatory reform. The plan entitled, “Financial Regulatory Reform: A New Foundation” is a sweeping proposal that touches on all aspects of financial regulation, including insurance. The details of the plan are expected to be unveiled in draft pieces of legislation sent to Congress over the course of the summer of 2009. The outline; however, makes it clear that changes are to come in the areas of insurance, securities, and consumer protection.

1. Effective systemic risk regulation with respect to insurance. Insurance is included in the systemic risk oversight portion of the Administration proposal.
2. Strong capital standards and an appropriate match between capital allocation and liabilities for all insurance companies. The proposal acknowledges the need for strong capital standards and appropriate risk management; does not comment on the current state approach to solvency regulation.
3. Meaningful and consistent consumer protection for insurance products and practices. The proposal notes the wide variations in consumer protections across the states and calls for “enhancing” consumer protections and addressing problems in the current system, including in producer regulation. It is not clear what this means for current state rules, or how specific any federal legislation will get. By mentioning the “problems” faced by producers, however, the proposal does open the door for enactment of NARAB II.
4. Increased national uniformity through either a federal charter or effective action by the states. The proposal acknowledges the need for better, more uniform regulation and leaves the door open for consideration of a federal insurance charter and / or using federal pressure to force the states to be uniform in their approach to regulation.
5. Improve and broaden the regulation of insurance companies and affiliates on a consolidated basis, including those affiliates outside of the traditional insurance business. The proposal acknowledges the shortcomings in the states’ approach to insurance holding company regulation and calls for closing the “gaps” that currently exist. Again, there is no suggestion as to how this might be done, but could be addressed by the systemic regulator.
6. International coordination. The proposal recognizes the need to improve the US approach internationally, both in terms of policymaking and trade. ONI would be tasked to take the lead on international regulatory issues and given authority to enter into international agreements. The Administration appears to be relying on the creation of a federal insurance information office and systemic oversight as the only federal insurance oversight tools, at least initially. Lacking either a federal regulator or strong pressure on the states to modernize, however, it is not clear that the proposal will go far enough to achieve meaningful insurance regulatory reform – or even to achieve the specific goals it sets forth.
   
   

The Administration appears to be relying on the creation of a federal insurance information office and systemic oversight as the only federal insurance oversight tools, at least initially. Lacking either a federal regulator or strong pressure on the states to modernize, however, it is not clear that the proposal will go far enough to achieve meaningful insurance regulatory reform – or even to achieve the specific goals it sets forth.

A. The proposal includes a variety of measures to strengthen investor protections, including increasing transparency in disclosure to investors, increasing sanctions available in enforcement actions, and putting shareholder controls on executive compensation. Notably, the proposal also calls for “harmonizing” the regulation of investment advisors and broker-dealers, including imposing a fiduciary duty on broker-dealers offering investment advice. Currently, broker-dealers and their registered representatives are subject to a suitability standard with respect to their clients, while investment advisors are subject to the more stringent fiduciary standard. The proposal suggests that the differences between investment advisors and broker-dealers are no longer meaningful to consumers, who see them as the same, or very similar, service providers. Therefore, the legal distinction between the two no longer makes sense. To that end, the proposal would raise the standard of care on broker-dealers and their registered representatives to that of fiduciary.

In addition to standards of care, the proposal includes vague language that would permit the SEC to establish similar duties for financial services intermediaries across financial products. This would include giving SEC authority to examine and ban forms of compensation that encourage intermediaries to put investors in products that are profitable to the intermediary but not in the investors best interest.

The proposal appears to limit the applicability of these requirements to broker-dealers and investment advisors and their representatives. Having said that, many insurance producers, particularly life agents, also serve as registered representatives. To the extent federal law seeks to change – and increase – the duties imposed on a producer with respect to his/her securities activities, there is a danger that the obligations could bleed into their insurance activities, either by law or by necessity.

A. Yes. The proposal would designate the Federal Reserve as the systemic regulator, and create a Financial Services Oversight Council (FSOC) to work with and advise the Fed.

As the systemic regulator, the Fed would have consolidated supervisory and regulatory authority over systemically important financial institutions. Although not specifically defined, financial institutions would be subject to Fed oversight if their “size, leverage and interconnectedness” could pose a threat to financial stability if they failed. The Fed would have consolidated supervision authority, so their oversight would cover parent companies, as well as subsidiaries. The proposal specifically calls for lifting constraints imposed under the Gramm-Leach-Bliley Act (GLBA) on the Fed’s authority to require reports, examine and take other regulatory actions with respect to financial institutions (including insurers) that are subject to systemic oversight.

The principal purposes of the Financial Services Oversight Council would be to assist the Fed in determining which financial institutions are “systemically significant” and, therefore, should be subject to federal systemic risk oversight. The Council would also serve as an information exchange and facilitate coordination among the regulators to enable them to identifying emerging risks and regulatory gaps.

The Council would be comprised of the leaders of the federal banking and securities agencies. Despite the fact that though insurance entities clearly can fall under the “systemically significant” category, and would likely be the subject of Council deliberations, if not Federal Reserve systemic oversight, there is no one on the Council with insurance expertise or regulatory authority – either at the federal or state level.

A. Yes, but only if insurance regulators have an official advisory role to the regulator.

A. The proposal would give the Department of the Treasury the power to put failing "systemically significant" financial institutions into a special resolution proceeding that would give the government special conservator ship and liquidation powers. Although there are few details in the new proposal, according to a proposal released by the Treasury Department earlier in the year, the resolution authority would include the power to sell off assets without obtaining state approvals (selling of an insurance company without going through a change of control approval process, for example) and to time limit the filing of all claims. The latter would be at odds with state run-off procedures, but under the Treasury proposal, state procedures would not have been considered in an insurer resolution process.

A. The proposal creates a new Consumer Financial Protection Agency (CFPA) that will have regulatory authority over all financial products not regulated by the SEC or CFTC. The bill also specifically excludes most insurance activities from CFPA oversight. The only insurance products covered by the proposal are credit insurance, mortgage insurance, and title insurance. The CFPA would have authority to issue and enforce rules governing “credit, savings, payment, and other consumer financial products and services,” and the providers of such products and services.

The CFPA is intended to provide a separate consumer protection advocate in the financial regulatory system with the goal of reducing gaps in federal consumer protection supervision and promoting consistent regulation of similar products.

A.

1. The bill specifically excludes most insurance activities from CFPA oversight.
   The only insurance products covered by the proposal are credit insurance,
   mortgage insurance, and title insurance.
2. With respect to securities products and services, the bill specifically provides that the CFPA has no authority over persons regulated by the Securities and Exchange Commission (SEC).  This would include broker-dealer registered representatives.  Moreover, the bill specifically excludes from coverage investment advisers subject to oversight by the SEC.  Investment advisers not subject to SEC regulation or registration would be subject to CFPA oversight.  Thus, investment advisors regulated only by the state securities regulators would be subject to CFPA regulation, as well.
3. The CFPA would have authority to oversee “financial advisers” who provide “financial and other related advisory services.”  It is not clear what this term covers and how it differs from “investment advisers.”  Presumably, it is not intended to cover advisers who are offering that service in conjunction with sale of insurance products or those who are registered with the SEC.  We will seek further clarification as the proposal advances through Congress.
4. The bill would require the CFPA to coordinate with the SEC and other regulators, including state insurance and securities regulators (as necessary), to provide “consistent regulatory treatment” of financial products and services.  Specifically with respect to the SEC, the bill would require CFPA to “consult and coordinate” with the SEC in connection with any investment product that is the same type of product or competes directly with a product subject to CFPA oversight. 

A. Given the current U.S. financial crisis and anticipated regulatory changes to all U.S. financial institutions, the time table and scope of Congressional action on insurance regulatory reform has been substantially affected. The Obama Administration and Democratic leaders in Congress have a set a goal to pass legislation before the end of 2009 that will do the following:

The House is also expected to pass NARAB II legislation before the fall of 2009. Senate Banking Chairman Dodd has expressed a desire to take up NARAB II in the Senate before the end of 2009.

As for optional federal charter, the Obama Administration has not taken a position on whether to create an OFC. In the meantime, House Financial Services Chairman Barney Frank has said the issue of whether or not to create an OFC is a priority for his committee and he will address it in the fall of 2009. Senate Banking Committee Chairman Chris Dodd has been less clear about his plans for an OFC.

A. Possibly. A number of influential legislators on both sides of Congress favor dropping property/casualty insurance from any OFC legislation 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.