When the 112th Congress gets underway in January, the long-stalled optional federal charter will be on the agenda. After five years of on-again, off-again debate over the merits of the OFC, it's high time that Congress pass this critical legislation.
The OFC is clearly in the interest of the life insurance industry–and of producers. Unveiled during the 109th Congress as the National Insurance Act of 2006, the bill would allow life and property/casualty insurers, and their agents, to choose to be regulated by the federal government or remain under the current the state system.
Numerous industry trade associations are backing the bill, among them the American Council of Life Insurers, the Council of Insurance Agents and Brokers and the National Association of Independent Life Brokerage Agencies. The various groups, supported by carriers that operate nationally and that stand to benefit from a uniform regulatory framework, collectively make up the Optional Federal Charter Coalition.
The OFC would offer stakeholders harmonized rules across all 56 U.S. jurisdictions–the 50 states, plus D.C. and American territories–that are now subject to disparate regulations. For insurers and agents that operate across states lines, such consistency will eliminate costly and time-consuming red tape now devoted to securing approval of products, policy forms and licenses in multiple jurisdictions.
By having a single point of filing for new insurance products, insurers can speed time to market for new offerings. Currently, it can take up to two years to get a new life insurance product approved. (Banks and securities firms that are federally regulated, by contrast, can get new products to market in 30 days).
True, the Interstate Compact, a model law drafted by the National Association of Insurance Commissioners in 2006 for the states, would accomplish much the same thing. But, as noted in my feature article on the NAIC beginning on page 24, to date only 36 states have adopted the legislation. To judge by past experience, the NAIC won't secure 100% adoption.
