Washington, D.C.—Life insurance producers could save hundreds of millions of dollars annually in licensing fees if Congress enacts legislation creating an optional federal charter (OFC) system for the insurance industry, according to a new study by Dr. Laureen Regan, associate professor with Temple University’s Fox School of Business and Management
Regan’s study contends life insurance consumers would benefit from a system that offers uniformity of market conduct regulation combined with uniformity of products across state lines.
The study estimates that the savings in producer licensing associated with moving to an OFC from the current system of exclusive state regulation could range from $268 million to $377 million annually. In addition, an OFC would benefit producers by creating uniform requirements for pre-licensing and continuing education. The study—entitled The Optional Federal Charter: Implications for Life Insurance Producers—was commissioned by the American Council of Life Insurers (ACLI), a Washington, D.C.-based trade association.
“All the objective evidence points strongly in favor of an OFC,” says Frank Keating, president and chief executive officer of ACLI. “An earlier study by University of Georgia Professor Steven Pottier found that life insurers could save up to $5.7 billion annually in compliance costs under an OFC system. Now, Professor Regan’s analysis shows that life insurance producers also would realize substantial savings.”
“Additionally, brokerage general agencies also will see significant cost savings,” says John W. Felton IV, chairman of the National Association of Independent Life Brokerage Agencies (NAILBA). “On average, brokerage general agencies spend $12,600 and 347 hours of staff time annually to be in full compliance with the differing insurance regulations that exist in each state.”
Keating believes the real beneficiaries would be life insurance consumers. In a highly competitive market, most of the savings would be passed on to consumers in the form of lower premiums.
“Everyone deserves to have access to the best possible life insurance protection for their family,” Felton adds. “Unfortunately, with our current system, individuals with the exact same needs cannot gain access to the same life insurance protection, simply because of geography.”
ACLI and NAILBA, a nonprofit trade association with 350 member agencies across the United States, strongly support the National Insurance Act, legislation introduced in the Senate and the House that would create an OFC system. Senators John Sununu (R-NH) and Tim Johnson (D-SD) sponsored the Senate bill, S. 40, while Reps Melissa Bean (D-IL) and Ed Royce (R-CA) sponsored the House bill, H.R. 3200.
Regan’s study notes that while states have been working on uniformity, progress is, at best, incomplete. Only 59% of states were in compliance with the pre-licensing education standards of the Producer Licensing Model Act, and only 22% were in compliance with the continuing education requirements, as of Dec. 31, 2005.
Similarly, as of May 30, 2007, only 30 states had joined the Interstate Insurance Product Regulation Compact, which would create a uniform, single-point system for approval of life insurance products.
The study adds that the National Insurance Act would establish nationwide uniformity in product approval and create a structure for national market conduct regulation. The result of this would likely be an increase in customer satisfaction.
“States are working hard to establish uniform regulation, but it has been difficult to achieve,” Keating says. “The impetus provided by creation of an optional federal charter may spur the states to achieve true uniformity. Nothing would please us more than to see a reformed, streamlined state r gulatory system co-existing with a federal system for the benefit of all consumers.”
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