As some regulators push for
uniformity, they’re thwarted by attitudes of “I
don’t care what the rest of you are doing; we do it best
in my state, and I’m not changing.”
Scott Sinder and John Fielding
The organizing principle of the NAIC when it first met in
1871 was to create a system of state insurance regulation where
each state had the same laws and regulations. Nearly 140 years
later, we are still waiting for state regulators to fulfill
that promise. The most recent meeting has brought them (and us)
no closer to that goal.
To be fair, state regulators, through the NAIC, have been
trying to make state laws and regulations uniform (or at least
“seamless”) from state to state. They have had
limited success, such as the financial solvency accreditation
program and the interstate insurance compact for life insurance
product approval. Even in producer licensing, there have been
some improvements from the mess 10 to 15 years ago (aided by
the threat of a federal licensure clearinghouse). But these
partial successes cannot obscure the undeniable fact that
uniformity is not the norm. Regulators can’t change it on
The differences among the states—not only in laws,
rules, processes and procedures, but in the ways they interpret
them—impose huge administrative burdens and costs on the
industry. Every insurance consumer feels these costs, and there
is no evidence that the differences among the states lead to
any additional consumer protection benefits.
Are Iowa insurance consumers more vulnerable than consumers
in other states due to the fact that Iowa does not license
insurance agencies (as many states do)? Are consumers better
protected if a state requires a surplus lines filing on a
quarterly or a monthly basis, or right after a policy is
placed? Are insurance producer applicants in Illinois (where
licensing examination pass rates hover around 80%) simply more
intelligent than applicants in other states (where the pass
rate can be as low as 40%)? Or is it better for some reason for
consumers to have fewer applicants pass the exams? Are
consumers better protected in states that permit a producer to
be paid by commissions and fees vs. only commissions or only
There are hundreds more examples, of course, and we do not
have all the answers. The point is, if a regulatory requirement
is necessary for the protection of consumers in State A, what
about State B? Conversely, if it is not necessary in State B,
why State A? There is no good answer.
It appears to be a combination of “That’s the
way we’ve always done it” and “I don’t
care what the rest of you are doing; we do it best in my state,
and I’m not changing.” Of course, they do not admit
that publicly. In public, uniformity is almost an article of
faith for the regulators.
This frustrates you, and it also frustrates many of the
regulators. A number of the commissioners, particularly those
in leadership roles, have been pushing hard on uniformity for a
while. New Hampshire commissioner Roger Sevigny, the
NAIC’s president this year, has been committed to
achieving uniformity in producer licensing, and The Council has
been working to help him get there. Unfortunately, it’s
not a follow-the-leader group, even if the leader has the best
One way states could achieve uniformity is through a
“federal tools” type of approach: Use federal
legislation as a lever to force the states to enact uniform
insurance regulatory requirements. Sevigny has suggested the
NAIC might be open to this approach, and it has been helpful in
connection with the surplus lines legislation that The Council
has championed on Capitol Hill.
The problem, however, is that the regulators balk at the use
of federal leverage. Unwilling to make the compromises
necessary to develop uniform requirements and consistent
consumer protections, they fall back on the “we do it
best in our state” argument.
This was on full display at the NAIC’s recent meeting
in Minneapolis. Financial services regulatory reform was a
major topic of discussion at the meeting and the subject of a
marathon regulator-only session. The commissioners met for five
hours one day to discuss their position on regulatory reform
and reportedly came up with nothing but disagreement.
Apparently, there is a significant split between those
regulators who see a role for the federal government in
insurance oversight and welcome federal assistance in achieving
uniformity and those who, despite their lip service, are intent
on protecting their prerogatives.
The pressures on commissioners—from their governors
and local interests among others—cannot be discounted. It
may be very difficult for some regulators to push for reform.
But insurance is about keeping promises, and the promise of
uniformity has been a long time coming. The current crisis,
despite its devastation, has given us an opportunity to fix the
weaknesses in our regulatory system. The state insurance
regulators should use the opportunity to fulfill a promise they
made 138 years ago.
Sinder, a partner at Steptoe &
Johnson, is CIAB general counsel.
Fielding is of counsel at
Steptoe & Johnson.