Ever since Gramm-Leach-Bliley passed in November 1999, momentum has been building to reform the state-based insurance regulatory system. The landmark legislation, which allows banks, insurers and brokerages to merge and compete with one another, also ordered the states to enact uniform producer licensing laws by November 2002 (see "Here Come The Feds, May 2001).Yet, although the law mandates uniform producer licensing, it essentially left the rest of insurance regulation to the states. And, according to many in the industry, the state-based system puts insurers at a disadvantage-especially when they're trying to compete nationally with banks and brokerages.

Nationwide Financial Services Inc., for example, offers a modified guaranteed annuity, which is registered with the U.S. Securities and Exchange Commission. The product is designed to compete with bond funds offered by mutual fund companies, according to Joseph J. Gasper, president and COO of the Columbus, Ohio-based company.

Speaking in June before a subcommittee of the U.S. House of Representatives, Gasper said Nationwide cannot sell this particular product nationally-although it has been approved in 45 states-because some states prohibit the contract design or require such costly system changes that Nationwide cannot justify making them.

The States Respond

"The issue that seems to be at the front of all the debate is the speed to market issue-product regulation," says Wes Bissett, vice president of state government affairs, at the Independent Insurance Agents and Brokers of America (IIABA), Alexandria, Va.

With the threat of Congressional action looming, the National Association of Insurance Commissioners (NAIC) has been actively working to modernize the state-based system. Addressing speed to market concerns is high on its agenda.

For example, the Kansas City, Mo.-based association implemented an electronic product approval filing system called the System for Electronic Rate and Form Filings (SERFF). All 50 states and the District of Columbia have SERFF licenses, and 500 companies are now filing with the states using SERFF, according Terri Vaughn, Iowa's Commissioner of Insurance.

According to the NAIC, its initiatives are working to reduce costs and approval time. "One company told us that with SERFF, its cost per filing has dropped from $38 down to less than $10 per filing," Vaughn told the House subcommittee. And the average turnaround time for a filing submitted through SERFF is 16 days, she claimed.

The NAIC's also is focused on developoing an interstate compact that would define uniform standards for annuities, life insurance, disability, and long-term care product lines. The compact would also establish a central clearinghouse for insurers seeking to introduce these products on a national scale.

In those states that adopt the compact, insurers would file with the new entity, instead of filing with each state and waiting for review and approval. It's possible the NAIC would also establish a compact for property/casualty lines, sources say.

The problem with addressing speed to market through an interstate compact or any other state-based initiative, however, is the process is inherently time-consuming. Each state will have to review the compact and adopt it. Congressional action would be much faster.

As a result, Congress may take action by using its preemptive authority over state's prior approval laws, IIABA's Bissett says.

"It's very clear that leaders on Capitol Hill view the current system as inefficient, paper-intensive, arbitrary, time-consuming, and they want to see change," he says. "If the states can do it, great. But we certainly got the impression (at the subcommittee hearings in June) that Congress is ready to take some action itself."

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