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WASHINGTON-A legislative proposal to create a national clearinghouse for insurance broker licensing could make brokers more efficient in serving their clients.
According to proponents of the idea, it would enhance competition by making it easier for agents and brokers to operate on an interstate basis, cut overhead expenses by reducing the amount of time and effort that must be devoted to meeting hundreds of often duplicative state licensing requirements, and make products more readily available in more states.
Creation of the clearinghouse, which would be run by a new National Assn. of Registered Agents & Brokers, is called for in the Financial Services Competitiveness Act, H.R. 10.
The proposal already is receiving a favorable response from the Risk & Insurance Management Society Inc. in New York.
"To the extent that it would make the marketplace more efficient, we would be all for it," said Paul Brown, RIMS' director of government affairs in Washington. Mr. Brown noted that RIMS had supported a similar though not identical proposal offered as part of federal solvency legislation a few years ago by Rep. John Dingell, D-Mich.
"From a buyer's angle, the issue is efficiency in the marketplace. Anything that creates greater uniformity in licensing should produce cost savings," said Barbara Haugen, senior vp and director of federal affairs for the National Assn. of Insurance Brokers in Washington, which supports the NARAB proposal.
"When you're trying to do business for a client with interstate business, it's very inconvenient not being able to move smoothly across those borders," she said.
"The primary reason is probably to open competition in the majority of states, where it becomes burdensome to become licensed," said Andrew Cassidy, executive vp of Early, Cassidy & Schilling Inc., a Bethesda, Md.-based brokerage. Mr. Cassidy also is chairman of the Washington-based Council of Insurance Agents & Brokers' Legislative Committee.
"By easing a broker's ability to do business within a state, it allows those brokers to bring those products that they sell into that state," said Mr. Cassidy.
Under H.R. 10, membership in NARAB would be open to all state-licensed agents and brokers that meet the new voluntary organization's membership criteria. Criteria, such as completion of continuing education, would be based on the highest standards currently in the marketplace. NARAB would be overseen by a board of directors, the majority of which would be state insurance regulators.
NARAB would not issue a federal insurance license but would streamline the licensing process by devising uniform licensing requirements. It would allow agents and brokers to obtain the licenses for each of the states in which they want to do business from one source.
States would continue to receive licensing fees, which NARAB would collect. In turn, NARAB members would be exempt from state residency requirements, duplicative continuing education requirements and state countersignature laws. States also would be expressly forbidden from imposing any requirements on NARAB members that would run counter to NARAB criteria.
H.R. 10 won the approval of the House Banking Committee late last month. It also must be approved by the House Commerce Committee before going on to the full House.
It does, however, face significant opposition from the National Assn. of Insurance Commissioners. In a June 17 letter to Banking Committee Chairman Jim Leach, R-Iowa, on behalf of the NAIC, Kentucky Insurance Commissioner George Nichols III said the proposal "would essentially create a federal license."
Mr. Nichols, who chairs an NAIC committee on banks and insurance, also said the proposal is "entirely inconsistent" with the McCarran-Ferguson Act, which gives states the right to regulate the business of insurance.
Not surprisingly, the Council of Insurance Agents & Brokers disagrees.
"It is not a federal license; it is a clearinghouse for multistate licenses," said Joel Wood, vp-government affairs for the Council, which has been the most vocal proponent of NARAB. Mr. Wood pointed out that potential members still would have to obtain state licenses before joining NARAB. He also pointed out that NARAB's board would be dominated by insurance regulators nominated by the NAIC. States also would still get their fees and retain the right to discipline producers.
"If a state ever wants to discipline you, you are still subject to genuine consumer protection statutes," said Mr. Wood. "We're trying to make it fit with state insurance regulation."
Mr. Wood added that the proposal would assure that NARAB members meet the highest possible professional standards.
"The statute requires, while it does not spell out any of the specific standards, that the professional standards are to be higher than that of any state," he said.
From a buyer's standpoint, that would be important, said Mr. Wood. "There is an inherent Good Housekeeping Seal of Approval in this."
Mr. Wood also stressed the potential savings. "Every brokerage firm has full-time staff people dealing with the hassle of state insurance filings." That creates unnecessary costs for consumers, and NARAB would cut down on "the needless hoops and paperwork that are so counterproductive."
Mr. Wood also pointed out that even if it won congressional approval, NARAB would not come into being if the majority of states adopt uniform licensing standards within three years of the effective date of any legislation that creates NARAB.