Interstate Compact Close To Becoming A Reality

Birny Birnbaum, an NAIC funded consumer advocate and executive director of the Center for Economic Justice, Austin, Texas, says he still has concerns. During the development of a model creating the compact and the creation of the compact's bylaws, he says consumer representatives urged regulators to create a greater role for consumers. But "public accountability has not only been ignored, it has been denied," Birnbaum says. This is "more than just a mechanical filing process," he adds.

Birnbaum says that while there is a consumer committee, there is no funding for consumer representatives, which makes it difficult for them to participate.

Without the ability to review filings, it is impossible for consumers or consumer representatives to make sure that products being approved are consumer friendly, Birnbaum says. He challenges what he says are industry assertions that the filings should be kept confidential because they include trade secrets.

And consumer concerns will be more difficult to advance if they cannot be expressed during the actual commission review, he notes.

In many cases, he says, consumers would be better off with the way the system works now through state insurance departments.

Patricia Parachini, a vice president with the American Council of Life Insurers, Washington, disagrees, noting the compact will make it easier to get innovative products to consumers and will not remove a state's right to retain authority over market conduct issues or oversee how the product is sold.

An insurance department will simply be "outsourcing the form filing approval to this insurance body," she explains.

Miriam Krol, an ACLI senior director, notes that consumers will be able to ask for a review of a compact commission decision.

"Everyone sees the need for the compact," says Parachini, who notes the efforts of the NAIC, the National Conference of Insurance Legislators, Troy, N.Y., and the National Conference of State Legislatures, Denver. Of efforts at the state level, she says, "it was not that much of an uphill battle," noting that the requisite number of states have signed on in two years in what the Council of State Governments says is normally a five- to seven-year process.

"Legislators do see the need for uniformity," Parachini says.

Efforts will continue to add larger states to the compact. Pennsylvania and Texas have signed on to the compact, and legislation is being considered in Florida, New York, Massachusetts and Ohio, she says. ACLI will also work to add California to the number of compact states, although she notes it has not been engaged in the process at NAIC.

ACLI's Krol has been participating in work on the compact standards at the NAIC for over three years and says the process is well thought out, has involved compromise and has not been 'a race to the bottom' as some had predicted it would.

The standards are broad enough to allow for product innovation, according to Krol. "The standards are not concrete. They are meant to be dynamic."

For instance, she says the equity index products will probably be taken under consideration this year.

If an entirely new product separate from the four product categories were to emerge, then legislation in the states would have to be amended to reflect that, Parachini says. But Krol adds that most new filings would be new features added to a product that currently falls within the four product categories.

She adds that SERFF will probably be the IT platform for the compact, and it is one that will serve the compact well because about 1,200 to 1,300 companies currently use SERFF as well as 50 state insurance departments.

Initially, the product approval time will be about 90 days, but ultimately, it could be less than 30 days, she continues.

Companies that want to participate in the compact, according to Parachini, should be looking at the standards and should be preparing products that meet those standards in anticipation of the compact becoming operational in a short time.

George Coleman, a vice president of internal and external government affairs with Prudential Financial, Newark, N.J., says the compact is very important to companies, including Prudential, because it provides a single place to file a product and will significantly cut down on the time it takes to get a product approved. In a few cases, the approval process can take up to a year and a half, he continues.

Life insurers' competition does not face the same 50-state regulatory approval process, he adds. As standards continue to be finalized, Coleman says, it will be important that they represent the view of all states and not just the requirements of one or two states.

Prudential and other companies have long sought more uniform product filing procedures. Coleman recalls its product filing with the compact's predecessor, the CARFRA project. He calls it a "heroic effort" on the part of regulators but adds that it was also an amalgam of different state requirements.