GAO Report: Insurance Regulation Should Be More Uniform, Reciprocal

By Sean P. Carr, Senior associate editor
BestWeek (A.M.Best)
May 11, 2009

Strides have been made to streamline insurance regulation, but stiff challenges to full uniformity and reciprocity across state lines remain, according to a new U.S. Government Accountability Office report.

Too many states do not participate in pro-uniformity initiatives developed by the National Association of Insurance Commissioners and implementation remains inconsistent, the GAO found. Differences in state laws are continuing to limit reciprocity in the regulation of property/casualty insurance products, according to the report.

The report was prepared in advance of a May 14 House Financial Services subcommittee hearing on the role of the federal government in insurance regulation. Chaired by Rep. Paul Kanjorski, D-Pa., the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises' hearing is headlined "How Should the Federal Government Oversee Insurance?"

The GAO reported testimony that the NAIC's System for Electronic Rate and Form Filing has simplified product approval filings and reduced errors. However, SERFF does not solve the problem of differences in state regulators' review and approval processes, the GAO found. The Interstate Insurance Product Regulation Commission (Insurance Compact) has 35 participating states, but it still leaves certain decision-making up to the states; also, several states have not joined because they believe their processes and protections are superior to the compact's, according to the report.

"To the extent these areas lack reciprocity and uniformity, some industry participants noted that there may be inefficiencies that slow the introduction of new products and raise costs for insurers and consumers," the report stated.

The 11-year-old SERFF system is used in all lines of insurance. It is designed to enable companies to send and states to receive, comment on and approve or reject insurance industry rate and form filings. Nineteen states have either implemented a mandate of SERFF or announced their intent to mandate the use of SERFF in 2009. Ten states have mandated that their filing fees be paid via electronic funds transfer (BestWire, Dec. 8, 2008).

The compact enables state insurance regulators to develop uniform national standards for products, including life insurance, annuities, disability income and long-term care insurance. More than 50 uniform standards have been adopted to date. Companies can make one insurance product filing under one set of requirements and receive one approval effective in all compact jurisdictions (BestWire, April 10, 2009).

NAIC Chief Executive Officer Therese M. Vaughan said the association will continue to work with the industry and federal officials to improve uniformity and reciprocity, as recommended by the GAO.

"The NAIC would like to thank the GAO for acknowledging the great steps state regulators have taken toward modernization to benefit consumers and the insurance marketplace. We agree with the GAO's recommendation for the NAIC and state regulators to continue working to improve consistency where appropriate in the review and approval of product filings," she said in a statement.

Vaughan highlighted the issue of nationwide criminal background checks for insurance producers, another aspect of the GAO report. While NAIC models on producer licensing and uniform licensing standards have helped, regulators do not have a systemic way to access disciplinary records from all jurisdictions, according to the GAO.

"NAIC officials noted that as of March 2009, only 17 states were performing full criminal history checks using fingerprinting, and some states that do such checks have been unwilling to reciprocate with states that do not," according to the report.

While the GAO report did not endorse establishing a federal insurance regulator, Frank Keating, president and CEO of the American Council of Life Insurers, said it bolsters the case. In a statement, he said an optional federal charter would streamline efforts toward national uniformity and efficiency.

"State regulators and the National Association of Insurance Commissioners are working diligently to achieve uniformity and we appreciate the progress they have made. But gaps remain. The goal of developing national regulation under a state-based system remains a long way off, if it is ever to be achieved. An OFC system would establish immediate uniformity for insurers choosing to be regulated by the federal government," Keating said.

ACLI and the American Insurance Association support a federal regulator. The National Association of Mutual Insurance Companies and the Property Casualty Insurers Association of America support the current state-based system, as does the NAIC.

As introduced by Reps. Melissa Bean, D-Ill., and Ed Royce, R-Calif., the National Insurance Consumer Protection Act, would establish a national system in which insurers, reinsurers, agencies and producers would be able to register at the federal level and be subject only to a single, national set of standards and regulations.

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