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For the NAIC, this is fast. But there actually was a change—or two. Federal pressure is starting to mount.

By  Scott Sinder and John Fielding

Although the weather was cool and foggy, there were signs at the NAIC’s summer meeting in San Francisco that insurance regulators are starting to feel the heat in a number of areas. To say there was a lot of action at the meeting would be an overstatement. This is the NAIC, after all. But there is some movement on issues important to us and on general NAIC housekeeping issues that reflect the pressure brought to bear by pending federal legislation, including the optional federal charter bill in the Senate and the surplus line bills in both houses.

Even the regulators acknowledge that surplus lines regulation is a mess. Indeed, the NAIC has told Congress that commissioners believe some federal intervention is necessary. They tried years ago to fix the premium tax allocation problem, but self-interest stood in the way. With the passage of surplus lines reform legislation in the House last year and its reintroduction in both chambers of Congress this year, regulators appear to be facing reality. They will have to take action whether or not they want to.

Several organizations are advocating an interstate compact proposal as the answer to the surplus lines regulatory morass. An ad hoc group, including NAPSLO and the state surplus lines organizations, as well as some regulators and a number of industry representatives, met in San Francisco to discuss the draft compact proposal, which addresses the tax allocation problem as well as conflicting state reporting and other requirements. The Council and the other insurance producer trade groups have not been included in the drafting process, though we will participate in the NAIC’s deliberations.

The compact proposal was formally presented to the NAIC at a meeting of its Surplus Lines Task Force in San Francisco. The meeting ended inconclusively, although it is apparent that many regulators agree federal action is necessary to fix the problem. An interstate compact may ultimately be required to implement a federal law, but the prospects for fixing the surplus lines regulatory situation without federal action are slim to none.

The NAIC meeting yielded little progress on producer licensing reciprocity and uniformity issues. The NAIC leadership’s so-called producer licensing “initiative” was mentioned in passing by Walter Bell, the NAIC president and Alabama insurance commissioner, but details have yet to emerge.

NAIC Vice President Roger Sevigny, the New Hampshire insurance commissioner, has initiated an NAIC/industry “Producer Licensing Coalition” meeting. Sevigny says the coalition will focus on producer licensing uniformity and reforms that may be “most meaningful to providers, producers and consumers,” including:
• Evaluating and promoting the implementation of uniformity standards that matter most nationwide;
• Developing national professional producer standards that should uniformly apply to all licensed insurance producers; and
• Evaluating national uniform licensing standards and national professional producer standards to outline those that fall within the authority and responsibility of the states’ regulatory review processes.

Although we are hopeful that this signals regulators’ willingness to take real action, we will believe it when we see it. In the meantime, we will continue to push the NAIC and the states to make good on their promises to fix the burdensome regulatory producer licensing structure.

The NIPR Board also approved a price reduction for its highest volume products—appointments, terminations and producer database “look-ups.” The Council is a member of the NIPR Board.

The five-cent reduction on these transactions begins Jan. 1. As of July 1, the transaction fee for non-resident licensing applications was reduced by 15%. NIPR also will begin absorbing credit card fees for state licensing charges on both resident and non-resident licenses. The annual savings to industry is about $2.5 million.

The new NAIC model law approval process hit some bumps when it was applied for the first time. The new approval process, adopted in May, requires NAIC leadership to sign-off on development of a new model law prior to drafting. To be approved, the model law must address a national issue that requires uniformity among all states, and regulators must be committed to advocating for the model in their states.

Regulators claim the new framework will inject discipline at all phases of the model law process and will ensure new models are relevant to the needs of many states. Policy initiatives that do not receive widespread support as a model could still be drafted in the form of guidelines.

Even before the meeting, the new model adoption process created controversy because it was devised by the NAIC leadership without input from the industry or consumers. As regulators debated adoption of two controversial new models (dealing with viatical settlements and sales of insurance to military personnel), much of the discussion focused on what level of commitment was required for support of a model and whether the regulators had authority in their home states to push a particular law.

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