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IT'S TIME FOR state insurance regulators to lead or follow-but get out of the way-when it comes to fixing the problem of conflicting state licensing requirements for insurance intermediaries.
Regulators themselves admit licensing is a mess, yet they continue to stubbornly oppose a key insurance industry proposal for fixing the problem that calls for their guidance and oversight. Why? Because the fact that the proposal comes in the form of federal legislation is anathema to them.
In the meantime, agents and brokers that seek to operate in multiple states continue to jump through hoops to meet the current plethora of differing and cumbersome state licensing requirements. The more egregious examples of these are state countersignature laws, as well as residency and incorporation requirements.
The National Assn. of Insurance Commissioners has had ample opportunity to remedy its acknowledged problem. In the early 1990s, Rep. John Dingell, D-Mich., highlighted the burdens and inefficiencies of a system of differing state licensing requirements. Regulators assured the lawmaker that the problem could be solved within five years.
It's now five years later, and little has been done to harmonize state rules in this regard.
We can only surmise that state insurance regulators are more interested in trying to protect their turf from the feds rather than their consumers.
This issue does affect consumers. The expense of compliance with this Byzantine licensing system is passed directly to buyers, both in terms of actual filing costs and also in hurdles and delays in putting together multistate insurance programs.
We think the proposed National Assn. of Registered Agents & Brokers, which would serve as a voluntary licensing clearinghouse, would eliminate this problem-without eliminating the states' role in protecting consumers or revenues from agent licensing. NARAB is contained in the Financial Services Competitiveness Act, H.R. 10, currently stalled in the House.
Under the NARAB proposal, states still would receive licensing fees and retain the right to discipline licensed producers that violate their laws. In addition, NARAB's board would be drawn from recommendations made by the NAIC and is likely to include state regulators.
NARAB also could raise the quality of insurance professionals by setting higher standards than some states now require.
Under the proposal, members of NARAB would have to meet criteria, such as completion of continuing education, based on the highest standards currently in the marketplace.
If that weren't enough, the proposal gives the NAIC ample opportunity to put its own house in order and eliminate the need for NARAB. The Commerce Committee bill essentially would give the states up to three years from the date of the legislation's enactment for a majority to adopt uniform licensing laws. If that is achieved, NARAB would not be created.
If it is not accomplished in three years, the NAIC would have up to two more years to launch and administer NARAB itself, under the federal proposal.
We think state regulators should see NARAB as an opportunity rather than a threat.
The proposal gives them an opportunity to build on the best of state regulation while eliminating the worst.
It is an opportunity to make regulation more effective by setting uniform licensing standards. It is an opportunity to raise the standards of agent and broker professionalism by setting a high benchmark.
Most importantly, the proposal gives them an opportunity to lead efforts to fix a problem they admit exists, before they are asked to follow the lead of others.