Whoops

Rough Notes, Aug 2002 by Hennosy, Kevin P

NAIC ANALYSIS AND OPINION

NAIC fails to certify any state's agent licensing effort

It was supposed to have been a done deal, but it was not. The National Association of Insurance Commissioners (NAIC) has been lauding states' efforts to adopt new rules governing agent licensing. And the June meeting was supposed to include the certification that enough states had successfully passed uniform agent licensing legislation, followed by a raspberry in the direction of Washington, D.C. But all the trash talk about political success fell silent at the NAIC summer national meeting.

State officials have until November of this year to establish reciprocal and consistent licensing requirements in 29 states. If states do not reach this goal, a federally chartered entity called the National Association of Registered Agents and Brokers (NARAB) will come into existence under the Gramm-- Leach-Bliley Act (GLBA).

When the NAIC met in June, regulators were speculating that 29 to 31 states would be "certified" by the end of the national meeting. However, when the NAIC NARAB Working Group met on June 10, the regulatory membership had an uneasy look.

The working group met for 10 minutes in public session. When the open meeting closed, attendees were told that the announcement concerning state certifications would follow in 10 or 15 minutes.

Non-regulatory attendees were ushered from the room and the doors were closed. An expectant crowd gathered outside the meeting room, rather like St. Peter's Square after the death of a Pope. Forty minutes passed. There was no white puff of smoke.

The meeting broke up. No announcement was made. On June 19, an NAIC official in Kansas City told Rough Notes that no certification announcements were expected until the fall national meeting in September.

What went wrong? The regulators have not said officially what the problem was. If one asks too persistently, the response sounds like something out of Doctor Zhivago: "There is no problem comrade-and your attitude is noticed."

Protection

Perhaps the first sign of impending trouble came on June 5, when the Independent Insurance Agents and Brokers of America (ILABA) wrote a letter to the co-chairs of the NARAB Working Group. The letter raises serious questions about state compliance with GLBA.

The letter states that since the NAIC has elected to comply with GLBA's "reciprocity option," rather than establishing statutory "uniformity," the states must comply with a two-pronged legal test.

The states must comply with a provision of the GLBA that outlines the permissible elements of reciprocity. In addition, states are allowed to retain certain local consumer protection laws that may otherwise conflict with the reciprocity requirements-the so-called "saving provision."

The IIABA letter advised the regulators that, "Agent and broker licensing reform need not come at the expense of consumer protection. The Congress enacted the saving provision to make this expressly clear."

The IIABA expressed concern that some states "have adopted an interpretation of the saving provision that would essentially read it out of existence."

Protectionism

One man's consumer protection is another man's protectionism. On June 11, the Council of Insurance Agents and Brokers (CIAB) announced litigation it brought against two states, Nevada and Florida, alleging "regulatory insurance protectionism."

The CIAB filed suit to enjoin the enforcement of counter-signature laws. While the CUB was a seminal influence on Congressional adoption of the NARAB provision, the litigation relies on constitutional rather than statutory arguments. Still, the timing of the litigation will play into the NAIC's consideration of NARAB implementation.

A public statement from Ken Crerar, CIAB president, explained, "The Council believes that the disparate treatment of nonresident insurance agents and brokers caused by these counter-signature laws is unconstitutional because it provides resident insurance agents and brokers with an unfair advantage over those insurance agents who do not reside in these states."

Traditionally state officials have defended counter-- signature laws as a means to establish a representative in insurance transactions. Privately, local producers will concede that counter-signature laws prevent large out-of-- state concerns from using their financial strength as a competitive advantage against smaller local producers.

The CIAB's membership consists of the nation's largest insurance producers who sell commercial lines products and benefits packages. The CIAB has fought to eliminate barriers to national players in local markets.

According to Crerar's statement concerning counter-signature laws, "These laws serve as nothing more than reminders of the protectionism the Council fought to eliminate when it supported the NARAB provision of the GLBA."

Regulators, legislators and the courts will have to decide whether reminders of protectionism do indeed result in unconstitutional behavior. Counter-signature laws have proved contentious for many years, but Congress declined to eliminate them expressly under the GLBA.