(Image credit: Lokal Profil.)

In our first article in this series looking at the complexity of state insurance regulation and requirements, we discussed the lack of uniformity and reciprocity among states, and looked in some detail at the diverging requirements. To continue, we’ll look at federal policy attempts to get states aligned, and what these have resulted in.

A provision in the federal Gramm-Leach-Bliley Act of 1999 (GLBA) sought to streamline producer licensing by requiring the states to enact certain reforms to the insurance producer-licensing process. The provision was designed to create a new organization called NARAB if greater state producer-licensing uniformity or reciprocity was not achieved. To this end, the federal statute required at least 29 jurisdictions to achieve either reciprocity or uniformity in nonresident producer licensing by November 2002.

In December, 1999, NAIC created the NARAB Working Group to help states implement the requirements of the GLBA. The Producer Licensing Model Act (#218) of February 2000 helped states comply with reciprocity provisions. As a result, NAIC determined that 35 jurisdictions had met the nonresident producer licensing-reciprocity requirements under GLBA. This resulted in the GLBA version of NARAB

being cancelled, resulting in no federal interaction. In February 2008, NAIC reported that all 35 states previously certified by the NARAB Working Group had remained in compliance with the 2002 reciprocity standards. They also found that other states were eligible for certification.

Where We Are Now

Seeming forward movement aside, the lack of uniformity among the states persists despite several warnings from the federal government over the past 15 years. The U.S. government has now taken the reins as part of the Terrorism Risk Insurance Reauthorization Act of 2015 (TRIA). Part of TRIA requires the creation of a national clearinghouse to streamline market access for nonresident insurance producers; hence NARAB II was signed into law by President Obama on January 12, 2015. Although much progress has been made to improve uniformity and streamline nonresident producer licensing, concerns remain that the envisioned uniformity and reciprocity hasn’t been fully achieved. For example, several of the largest states have not yet become reciprocal, according to the NAIC article “Producer Licensing and NARAB II,” which was last updated on December 19, 2016.

Many states currently continue to maintain their own licensing requirements, despite some attempts at uniformity. A producer licensed in one state generally has to meet state-specific nonresident licensing requirements in other states in order to sell, solicit, or negotiate insurance. Producers, therefore, must submit the same or similar information each time they want a new nonresident state license. It takes time to apply for multiple state licenses, even through the National Insurance Producer

Registry (NIPR). A variety of license fees rest on the state, in addition to NIPR transaction fees. Some states continue to have reciprocal license fees—a practice of charging different fees depending on the fee in the producer’s resident state. Producers must also meet the product training requirements set forth by each state, along with insurer-specific training, if indicated, for products such as long-term care and annuity. Some states reciprocate, whereas others do not; but those nonresident state

licenses must be renewed in any case.

In reality, DOIs do not understand what it is like from the insurer or agency standpoint. Many state regulators and compliance staff actually have no business experience in an insurance company or agency; most have worked for the state government most or all of their careers, perhaps in various roles, some of which have nothing to do with insurance. They don’t realize it is not just “their” state with which an insurer or agency has to comply, but ALL jurisdictions. Even though states create the regulations based on statutes passed by their legislatures, some outcomes appear to have happened with no practical awareness of the big picture taken into account.

For insurers and carriers, this only adds to the already complicated stew of regulation—not only in-state, but more importantly, state-to-state. Awareness of what goes on in your home state is no longer enough to keep current. And as regulation continues to change and become more intricate, automation of these processes becomes absolutely necessary to survive and thrive. While we can’t tell what states will do next in terms of regulation, it’s an educated guess that things aren’t going to get simpler anytime soon.

State Regulation, Part I: State Departments of Insurance Often Don’t See The Big Picture