The insurance industry wants Congress to do something about the Byzantine system of state-by-state agent licensing and oversight.
The insurance industry wants Congress to do something about the Byzantine system of state-by-state agent licensing and oversight.
Bills pending in both the House and Senate would provide an optional federal charter for insurance companies. But within those bills are less-publicized proposals to nationalize agent registration, as well.
If approved by Congress, a national registration system could allow an estimated 650,000 agents, as well as financial advisers who sell annuities and other life products, to break away from individual state requirements.
Although no action on the legislation is imminent, “we think it’s a question of when, not whether [the bills get passed],” said Gary Hughes, executive vice president and general counsel at the American Council of Life Insurers in Washington. “Momentum is pretty steadily building.”
The pending legislation would permit the creation of a national self-regulatory organization for insurance, along the lines of securities SROs, with broad power to regulate nationally licensed agents.
Lack of uniformity
A study commissioned by the ACLI and released this month estimated that a federal scheme could cut licensing costs by $268 million to $377 million annually, from the current cost of $432 million.
Members of the National Association of Independent Life Brokerage Agencies of Fairfax, Va., pay an average of $12,600 a year in licensing fees, said Alex DelPizzo, vice president for government affairs.
NAILBA members are life insurance wholesalers who do business in about 31 states, on average, he said.
Costs are just part of the problem.
Critics of the state-licensing system say that different fees, renewal schedules, continuing-education requirements and the need for agents to get separate “appointments” or approvals from carriers in each state make insurance licensing a nightmare.
“Most [agencies] probably employ one person just to deal with their licensing. These are small businesses, with eight to 25 employees — that’s 10% of their work force just dealing with licensing,” Mr. DelPizzo said.
“When I form nationwide insurance agencies, it’s taken me up to one and a half years to put together, and that’s using experts,” said Linda Wessels, a Vista, Calif.-based compliance consultant. Next to that, “Securities licensing is a slam-dunk.”
A lack of uniformity — more than cost — is driving the push to federalize, Mr. Hughes said. If the states got together, “the whole impetus for this optional federal charter would evaporate overnight,” he said.
While most observers say reform is needed, not all support the idea of federal oversight, even if it is optional.
“We’re strongly opposed to a national charter,” said Charles Symington, Washington-based senior vice president for government affairs for Independent Insurance Agents and Brokers of America Inc. in Alexandria, Va. “We feel local regulation that’s close to home works best for the consumer.”
Mr. Symington said his members are local independent insurance brokers who help clients deal with claims. The federal response to Hurricane Katrina is an example of how distant regulators don’t always react to local needs, he said.
Agents who remain state licensed would still have to deal with federally chartered carriers, Mr. Symington said, and thus would have to “navigate that federal system for our consumers.”
A national insurance regulator would have regional offices, as do the New York- and Washington-based Financial Industry Regulatory Authority and the Securities and Exchange Commission, to handle local issues, Mr. Hughes said.
“Unless it had offices in every state, there’s no way it could match the responsiveness of state regulators,” Mr. Symington said.
He added that the licensing mess could be solved with “targeted federal legislation” that doesn’t create a national regulator.
The National Association of Insurance and Financial Advisors’ membership is divided about the idea of an optional federal license, said Michael Kerley, the Falls Church, Va.-based organization’s senior vice president for federal relations.
Although NAIFA likes the idea, “there’s some discomfort in the idea of dealing with [an unknown] federal regulator,” he said.
Against federal oversight
The National Association of Insurance Commissioners in Kansas City, Mo., and the National Conference of State Legislatures of Denver and Washington also oppose the idea of federal oversight.
Calls to both state groups weren’t returned.
Although states would keep their cut of premium taxes, they would lose their authority over agents and companies that opted for federal oversight. States could also lose revenue from license fees.
State authorities aren’t likely to give up their powers without a fight, observers said.
State insurance regulation is “very political,” said Michael Brown, president of B/D Solutions Consulting, an Atlanta compliance consultant. Many states have elected insurance commissioners who have political aspirations, and the idea of giving up power to federal regulators won’t be welcomed, he said.
“I think it will take a long time to get agreement” on a federal regulation and licensing system, Mr. Brown added.
Dan Jamieson can be reached at djamieson@crain.com.
