Life Insurance

The Optional Federal Charter What it Could Mean to You?
by Douglas A. Mishkin

Consider the following scenario: You’ve been advising a high-income life insurance and annuity client for 20 years. Through hard work and personal commitment, you’ve established a close relationship based on trust and understanding. You took the time to get to know his family and business. You helped him develop retirement, estate, and business continuation plans that give him peace of mind that everything he has worked for during his life will be achieved, both after retirement and after death. He is not just a customer, he’s your friend.

But now, circumstances require that he move to a different state where you are not licensed to conduct business. What do you do? Do you lose him as a client? Do you add yet another license and another set of continuing education requirements to your growing list of financial obligations? Do you split your fees and commissions with an agent in his new state who did nothing to earn the money and is not as personally vested in your client’s best interests as you are?

Costly Inefficiencies

States and the National Association of Insurance Commissioners (NAIC) have made diligent, good faith efforts to create a more uniform insurance regulatory system. However, while the Interstate Compact has advanced, some of the largest states, including New York and California, are not part of it and have no intention of joining. And despite attempts to rationalize producer-licensing standards in the wake of the Gramm-Leach-Bliley Act, state-by-state differences and redundancies remain.
Many producers are frustrated by a system in which an innovative product that has addressed the needs of a client in one state is not available to a client with similar needs in a different state, solely because of unnecessary delays in product approval. An optional federal charter (OFC) offers a streamlined and efficient system that would eliminate these delays.

Everyone deserves to have access to the best possible life insurance protection for their family. Unfortunately, with our current system individuals with the exact same needs cannot gain access to the same life insurance protection, simply because of geography. And these inefficiencies are costly. A recent study, commissioned by the American Council of Life Insurers (ACLI) and conducted by Dr. Steven Pottier of the University of Georgia, found that the life insurance industry could save more than $5.7 billion annually in compliance costs under a single regulatory system.

Streamlining the Process

Suppose you could serve your clients, no matter where they live, simply by acquiring one license issued by a single national regulatory authority. That is the promise of the OFC.

An OFC would give insurers and producers the option to be regulated by a single national regulator housed at the Treasury Department instead of by the states. This one license would allow a producer to sell insurance for any nationally licensed insurance company to any consumer in the country. There would be one licensing fee and one set of continuing ed-uca-tion requirements. However, those ag-ents and producers who choose to remain operating under the current state-based system would be able to do so. Not a bad deal.

Moreover, producers representing nationally licensed insurers would be able to market a standardized portfolio of products across state lines. Nationally licensed insurers would only have to acquire the approval of one government agency before selling a new and innovative product nationwide. This is vastly different from the current environment in which more than 80% of insurers have postponed or shelved new products due to the costs resulting from varying state regulations and the inability of some states to approve new products in a timely way.
The Optional Federal Charter is an idea whose time has come. Single point product filing, single point licensing, conformity of licensed agent continuing education requirements and standards, and consistency in application forms and product design in all 50 states are provisions which would make the industry more efficient, creating significant cost benefits for both consumers and the insurance industry.

A Federal Response

Fortunately, Cong-res-sional support for an OFC is steadily gaining traction.
Under S. 40, the National Insurance Act, legislation sponsored by Sens. John Sununu (R-NH) and Tim Johnson (D-SD), a new Office of National Insurance would be created at the Treasury Department to oversee nationally chartered insurers and producers. This office would create a seamless and streamlined regulatory structure.
OFC would also establish a framework for state-of-the-art consumer protections. The new Office of National Insurance would have authority to set up numerous regional offices to resolve consumer concerns locally. In addition, the OFC legislation establishes a consumer ombudsman office, which would ensure that policyholder interests are considered during the rulemaking process.

As evidenced by this legislation, leaders in Washington are beginning to take notice. In fact, a recent McKinsey & Co. report commissioned by Sen. Charles Schumer (D-NY) and New York Mayor Michael Bloomberg on ways to sustain America’s global leadership in financial services specifically cited OFC as a priority item.
Because this system is optional, companies and sellers of insurance, who wish to remain regulated in their state of domicile can do so and continue to have access to only those products approved in their state.

Industry/producer/broker support for OFC should not be interpreted as criticism of the extraordinary job state insurance departments has done over the years in protecting the interests of policyholders. Rather, our support for OFC reflects the reality that in a mobile society in which policyholders regularly move from state-to-state, and in an industry that’s products are closely tied to federal tax and retirement policy and federal securities laws, it only makes sense to have a federal regulatory presence.
NAILBA’s hope is that the presence of a federal option will encourage states to accelerate their efforts at modernization and uniformity. That would create the best of all worlds for companies, producers, and especially consumers.
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Douglas A. Mishkin is Chairman of NAILBA. As a third-generation insurance professional, he is president and CEO of Algren Associates, Inc., an independent life and health insurance general brokerage agency in New York City. Founded in 1960 by Sid Dickerman, Algren Associates offers products and services to independent brokers and advisors in the areas of life insurance, long-term care insurance, and annuities with an emphasis on impaired risk. He joined Algren Associates in 1997 and became CEO in 2006. He is a graduate of Franklin and Marshall College where he earned a bachelor’s degree in business management. Mishkin splits his time between Maplewood N.J. and Manasquan N.J. with his wife, Nora-Jean, and sons Aidan and Gavin.