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In a burst of consensus, 28 states have agreed in little more than two years to cede sovereign authority for life insurance product approval to a new Interstate Insurance Product Regulation Commission. Seemingly overnight, a distant, unlikely possibility became the newest U.S. regulatory structure.
Of course, what seemed like a spontaneous combustion was years in the making. Life insurers for years have been reporting about the slow product approval process in the states, where it can take up to two years to get an annuity, life, long-term care or disability income product approved and rolled out nationally due to regulatory hurdles. Also, the debate in Congress over an optional federal charter no doubt sparked state legislators to act on a common supervisory structure.
Still, most everyone involved in insurance regulation was surprised at the swiftness of the compact's development. A supra-state commission to set common insurance product approval standards was born from a national association of state insurance commissioners and an industry anxious for uniform regulation.
The notion of an interstate compact itself is far from new. The concept was established in the U.S. Constitution primarily to address boundary disputes. Since the Civil War, more than 100 compacts have been created, although most are regionally based and have memberships of a handful of states. The Interstate Insurance Product Regulation Commission, with 28 member states from east to west, represents a significant expansion of the compact tradition and is bound to be monitored closely by governmental watchers, among many others.
But perhaps more importantly, the compact could represent a victory for the insurance consumers in the member states. A fully functioning compact could mean product innovations will be available quickly and nationally. Considering the nation's retirement security crisis and the need for insurance products that can help mange the risks of retirement, this speed-to-market initiative has arrived none too soon.
Of course, 28 states do not represent all U.S. consumersand all insurance consumers deserve equivalent laws and regulations. Time will tell whether the remaining states find the compact's promise of streamlined product approvaland the potential for reduced costs to the compact states' insurance departmentsto be appealing enough to share approval authority with the new supra-state regulatory authority. We hope they do.
To be sure, this new compact is experiencing growing pains. Companies are fighting to ensure product filings remain confidential. They also are fighting to ensure they aren't required to file more forms each time they update a few product features in their overall portfolio.
These issues represent the type of challenges that any new organization or regulatory structure should expect to experience, ones that can and will be resolved.
Disputes will always arise, but the foundation of a sound organization has been laid. Sufficient good will exists among all parties to see the way to the longstanding and successful Insurance Product Regulation Commission Compact.
Frank Keating is president and chief executive officer of the American Council of Life Insurers.