VIA ELECTRONIC AND OVERNIGHT MAIL
March 4, 2003
The Honorable Mike Pickens
Commissioner of Insurance
Arkansas Insurance Department and
President, National Association of Insurance Commissioners
1200 West Third Street
Little Rock, AR 72201-1904
Dear Commissioner Pickens:
Thank you for taking the time recently to meet with all of our organizations and companies concerning the future of producer licensing reform. As you know, we appreciate the recent efforts of the National Association of Insurance Commissioners (NAIC) and other state policymakers in this area, and we look forward to working with you and your colleagues in the pursuit of additional reforms. As promised during our conference call on January 29, 2003, we have outlined for you some of our observations and suggestions concerning these critical issues.
I. Introduction
State policymakers have made significant progress in the area of insurance producer licensing over the last several years. Over 40 states have enacted producer licensing reform legislation since the passage of the Gramm-Leach-Bliley Act, and 38 have achieved technical compliance with that Act’s reciprocity requirements. The NAIC and the National Insurance Producer Registry (NIPR) have also made meaningful progress in the effort to streamline the licensing and appointment processes and further refinements and enhancements appear imminent.
Although great progress has been made, there is considerable work ahead. Producers still face considerable obstacles, barriers, and costs in obtaining and maintaining licenses; insurers confront costly, inconsistent and redundant administrative hurdles. The challenges and difficulties facing the insurance industry are especially daunting to those that operate on a multi-state basis: while reciprocity has been enacted in most states, the need for uniformity in many critical areas of regulation is more pronounced than ever. In short, despite the progress made toward uniformity, the current regulatory environment makes it difficult to serve consumers efficiently, effectively, and responsively, creates a gauntlet of inconsistent regulatory requirements and makes it difficult for the insurance industry to compete on a level playing field with other financial services firms.
Our organizations believe additional producer licensing and appointment reform is essential, and we urge the NAIC to ensure that these issues remain top priorities. Much of the progress that has been made recently is due in large part to the emphasis and focus that has been placed on licensing reform issues, and it is critical that these items remain in the regulatory spotlight. The improvements made to date have only been achieved because of the diligent and
cooperative work of representatives from both the public and private sectors, and we hope to build further on the foundation that has been established. While states have satisfied the NARAB avoidance licensing requirements imposed by the Gramm-Leach-Bliley Act, it is possible that Congress will demand further improvements to the agent and broker licensing process.
In the pages that follow, we address some of our most pressing concerns in greater detail and offer recommendations that we hope will help the NAIC in its efforts to improve the producer licensing and appointment processes in the coming year.
II. Uniform Resident Licensing Standards
Background – Producer licensing and appointment uniformity has long been a stated objective of the NAIC, and the NAIC is to be commended for its adoption of the Uniform Resident Licensing Standards (the “Uniform Standards”). However, there has been little subsequent consideration of how these standards are to be implemented in the states. The Uniform Standards, adopted by the NAIC Executive/Plenary Committees at the September 2002 meeting in New Orleans, should be the foundation for the NAIC’s efforts in the coming year to move closer to uniformity in producer licensing and appointment.
Recommendations – We urge the NAIC to continue its pursuit of uniformity by developing an implementation plan for the Uniform Standards. We ask you to focus in particular on achieving the following objectives, each of which is found in the Uniform Standards:
· Establish uniformity in the license renewal process.
There is no uniformity in the license renewal process today. States renew licenses at different times of the year and utilize different methodologies both to determine when a license is set to expire and to effectuate renewals. States that require renewal applications often require additional documentation, such as proof of securities registration. Greater standardization would ease the tremendous administrative burden that is imposed on multi-state producers and insurers. The Uniform Standards call for all states to adopt a perpetual license term based on payment of a fee and completion of resident state continuing education on a biennial basis. Licenses would be “continued” on the licensee’s month or date of birth (or on a date certain in the case of business entities).
· Standardize background investigation requirements and establish that a producer’s state of residence, which grants a license, rather than insurers, should conduct background investigations.
Regulators, producers, and insurers all want to ensure that the public is protected from known criminals or individuals otherwise not worthy of offering insurance products. However, state requirements regarding the qualifications of producers are often vague and inconsistent. Certain states require each insurer appointing an agent to conduct due diligence. If a producer is appointed by multiple insurers, each insurer completes redundant checks, with accompanying costs and delays. Other states require only the insurer
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March 4, 2003
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sponsoring a license applicant to conduct due diligence. Still others require due diligence for resident appointments but not for nonresident appointments. In some states, requirements are imposed by statute and in others by regulation. Still other states, with no statutory or regulatory basis for requiring insurers to conduct due diligence, impose such a requirement by requiring the insurer to make a certification on the paper appointment form (and then compound the confusion by also utilizing electronic appointments which do not impose such a requirement).
Moreover, state requirements are very subjective, resulting in differing interpretations, not only from jurisdiction to jurisdiction, but also person to person within the same insurance department. Uniformity in the due-diligence requirements would help improve the system.
Consistent with the Uniform Standards, the state in which a producer seeks a resident license, rather than insurers, should conduct background checks that use the following three steps: (1) states would ask and review the standard background questions contained on the Uniform Application; (2) states would run a check against the NAIC RIRS/PDB and SAD databases; and (3) moving forward on an electronic basis, states would fingerprint resident producers and will process electronic fingerprints through NIPR during the initial resident producer licensing process. The goal should be that, consistent with the Uniform Standards, background checks would be the responsibility of each producer’s resident state. We recognize the effective implementation of this standard will require that insurance regulators have certain access to the information contained in the FBI's criminal history databases, something that will most likely require congressional action.
· Standardize continuing education requirements.
The Uniform Standards call for all states to require 24 hours of continuing education for all major lines of authority (but not for limited lines), with 3 of the 24 hours covering ethics, without waivers/exemptions except as provided in subsection 7(D) of the Producer Licensing Model Act. Continuing education compliance would be on a biennial basis to coincide with a producer’s license continuation date. States must accept both classroom study and verifiable self-study continuing education methods.
III. Non-Resident License Applications
Background – Over 40 states have enacted significant portions of the Producer Licensing Model Act (PLMA). While most have achieved technical compliance with the reciprocity requirements of the Gramm-Leach-Bliley Act, and despite the substantial revision to licensing statutes across the country, states have been slow to move to a truly reciprocal system. Under the PLMA, an applicant is supposed to receive a non-resident license if the person (1) is licensed and in good standing in his home state, (2) pays the requisite fees, and (3) submits a completed Uniform Application. Unfortunately, many states continue to impose additional document and other requirements in connection with an application, which is inconsistent with the principles of licensing reciprocity and uniformity, with the Uniform Standards, and perhaps also with the laws of many states.
Recommendation – Our organizations urge the NAIC and individual state insurance departments to take the following action:
· Eliminate ALL application requirements that are not part of and required by the Uniform Application.
IV. Electronic Licensing
Background – Producers increasingly operate in multiple states, but current regulatory requirements and practices make it very difficult and costly for multi-state producers to obtain and maintain licenses in the jurisdictions in which they conduct (or wish to conduct) business. One of the most significant challenges is actually applying for non-resident licenses. Most states continue to require potential licensees to submit paper forms, a practice which unnecessarily slows the licensing process. Although NIPR has made significant progress in developing a technological infrastructure for electronic non-resident licensing, most states have been unwilling to move to this web-based, single-point-of-filing system. Less than one-third of the states currently accept electronic non-resident license applications, and many of those only accept such applications from individuals.
Recommendations – Our organizations urge the NAIC to make the implementation of NIPR’s licensing vision in all states a top priority. Specifically, we ask the NAIC to do the following:
· Enable producers to apply for and obtain non-resident licenses from every state via NIPR’s electronic, web-based, single-point-of-filing system.
This has been the stated objective of NIPR and the NAIC, and we urge insurance regulators to take all steps necessary to make it a reality.
· Identify and develop a plan for eliminating any barriers to implementation of the NIPR electronic non-resident licensing in all states.
While this effort is clearly a priority of NIPR, the NAIC and state policymakers also have a vested interest in implementing a national electronic non-resident licensing system as quickly as possible. States that have adopted licensing reciprocity should be urged to adopt this system immediately and states that require statutory changes should be urged to seek such changes as soon as possible.
· States should accept electronic signatures for both resident and non-resident licensure and for any other purpose for which signatures are required.
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March 4, 2003
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V. Greater Utilization of the Producer Database
Background – The Producer Database (PDB) is a central repository of producer licensing information updated on a timely basis by state insurance departments, and it offers a variety of potential uses to both regulators and the insurance industry. The PDB has evolved dramatically in recent years, and its growth has been staggering. The database now contains nearly 3 million producer records and state insurance departments are submitting and updating information on a regular basis.
Recommendations – The PDB is a valuable regulatory tool that is being underutilized, and we urge the NAIC and the states to utilize this powerful resource in new ways. While the potential uses of the PDB are numerous, we encourage you to consider the two specific reforms described below:
· Eliminate outdated letter of certification requirements and utilize the PDB to confirm whether a producer is licensed in good standing.
Many states continue to require nonresident producer applicants to obtain a certification letter from their resident state regulator in order to prove that the agent or broker is licensed and in good standing at home. These requirements might have been the most effective way to verify licensure status in the past, but they unnecessarily slow the licensing process today and make it difficult for producers and insurers to serve their clients in a timely manner. The same information provided by a letter of certification can be obtained instantaneously by a regulator on the PDB. The PDB is actually a more reliable source of this information, since it can be maintained and checked in real time and provides regulators with the most current licensing information available.
· Consistent with statements in the NAIC Examiners Handbook, urge all states to accept website screen prints as acceptable proof of a producer’s licensure status for market conduct examination requirement purposes.
The states are inconsistent in their requirements for insurer maintenance of license file copies to satisfy market conduct standards. Acceptance of insurance department websites and PDB screen prints as acceptable proof of licensure for market conduct examination purposes would be consistent with statements in the NAIC Examiners Handbook that examiners should review and consider licensing information from PDB and the state websites (see Section VII-67). The requirement to have a paper license on file is a barrier to the electronic flow of data between insurer and producer and maintenance of such paper copies is an unnecessary expense.
VI. Appointment Filings
Background – Appointment filing and renewal requirements are a costly administrative burden for the insurance industry and for insurance departments, and the challenges and difficulties of compliance far outweigh any possible consumer protection benefit. The appointment filing process imposes unnecessary costs upon insurance transactions and impedes the ability of producers and insurers to respond to the needs and desires of their shared clients in a timely manner. Most observers – including many regulators – recognize that appointment filing requirements remain in place because of the revenues they generate for states. Some states have considered eliminating appointment-filing requirements as they exist today, and Colorado has successfully done so in a revenue-neutral manner.
In adopting the recent producer licensing reforms, most states overlooked the appointment section of the PLMA. The Model made appointment-filing requirements optional, and it provided a series of streamlined provisions for those states that preferred to maintain some form of appointment filing requirement. The core appointment provisions of the model are straightforward: First, a producer may not act as an agent of an insurer unless that person becomes an appointed agent of the insurer. Second, a producer is not required to be appointed by an insurer prior to submitting the first application to the insurer. Third, there is no requirement for approval of an appointment by a state; an insurer need only file a notice of appointment with the department within 15 days from the date that the agency contract is signed or the first application is submitted. Fourth, an insurer may appoint by holding company or group. Finally, a fee must be paid for the filing.