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Legal Ease by Scott Sinder Evolution

Change comes glacially to the NAIC. But with the world on the move, change is coming.

By  Scott Sinder and John Fielding

This conference felt different. But it wasn’t for lack of trying. The National Association of Insurance Commissioners meeting in San Diego kept things the same: the large, soulless hotel seating hundreds of state regulators and lobbyists and lots—and lots—of meetings on insurance minutiae. As usual, they cornered each other in hallways discussing whatever.

But this time it was different. I noticed an evolution (nothing moves faster than that) most starkly in the NAIC’s approach to federal issues and with producer licensing.

The NAIC has been increasingly more open to engaging Congress and contemplating federal involvement in insurance issues. We saw this in the last Congress, as the regulators worked with the Council and on the Hill on surplus lines reform, as well as in their support for the so-called NARAB 2 legislation and their active negotiation on legislation to create a federal office of insurance information. Regulator support for surplus lines reform was reiterated in recent testimony to the Senate Banking Committee.

Equally important, there has been a shift in focus from Kansas City (the NAIC’s longtime headquarters) to Washington. The NAIC recently brought on a new CEO, Terri Vaughan, a former Iowa insurance commissioner and past NAIC president. Vaughan has moved the executive offices to Washington, even though the organization cannot register and lobby Congress. However, the organization’s stepped-up interaction with Congress, and the integral role of insurance in financial regulatory reform discussions, make the move to the nation’s capital particularly well timed.

The hiring of Vaughan also signals a significant move for the NAIC. In addition to being a former regulator, she is an academic, with a doctorate in risk and insurance from Wharton. She will be the NAIC’s primary representative in Washington, working with Congress and the administration on insurance policy and legislative matters. I can think of no one better suited to the job. Vaughan, in her former capacity as president of the NAIC, worked with the Federal Reserve, Treasury, the Office of the Comptroller of the Currency and other agencies. The issues were less pressing, but the relationships Vaughan developed will serve as a good foundation for the more difficult discussions currently facing financial services regulators.

Vaughan will also oversee the creation of the NAIC’s new “Center for Insurance Information,” which will be based in Washington. The center, which will be staffed by “insurance experts” in the various lines of insurance, has been billed as the NAIC’s effort to make NAIC and insurance regulatory information and resources more accessible to federal policymakers and legislators. Presumably, it is also an effort by the regulators to blunt calls for the enactment of legislation, such as Rep. Paul Kanjorski’s, D-Pa., Insurance Information Act of 2008, which would have created a federal Office of Insurance Information. The NAIC did not oppose the legislation, but it’s not surprising that the organization would seek to avoid creation of a federal insurance entity.

The other area of progress is producer licensing. The lack of uniformity and reciprocity in producer licensing requirements nationwide remains a significant burden, and I doubt the NAIC and states will be successful in creating a seamless interstate system. Ultimately, only federal action can create a national, uniform licensing system.

Meanwhile, the NAIC has stepped up its efforts and, with the help of The Council and other producer groups, has had some success improving compliance with its standards.

The “progress” that most struck me in San Diego was in tone rather than substance. Prior to 2009, the NAIC’s producer licensing efforts were led by career insurance department staffers—a dedicated group of individuals but sometimes frustratingly caught up in their own way of doing things. This year, the NAIC reorganized and has enlisted a number of commissioners to be directly involved in the discussions and process.

To the uninitiated, this might seem like no big deal, but the impact was noticeable. Linda Hall, director of the Alaska Division of Insurance, essentially said this is the states’ last chance on producer licensing. If they don’t get uniformity and reciprocity right with this effort, states would not have another bite at the apple. She was not booed, hissed or drummed out for her remarks.

Even Oklahoma commissioner Kim Holland strongly urged fellow regulators to get over parochial interests, take a fresh look at why producers are licensed in the first place (consumer protection), and figure out the best way to get there without being tied to current practices and procedures.

So change appears to be coming. It is a welcome shift from the traditionally parochial approach of the past. I hope it is one that will last.

Sinder, a partner at Steptoe & Johnson, is CIAB General Counsel.Fielding is of counsel at Steptoe & Johnson.

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