Senate Bill 1434 Information - June 2008|
The life insurance industry continues to aggressively pursue an optional
federal regulatory system that would allow them a choice of being
regulated under a federal system or an individual state. That
legislation has not passed out or the Congress. The National Association
of Insurance Commissioners (NAIC) back in 2002 and fearful of a federal
take over of state based insurance regulation adopted their Model
legislation to establish an Interstate Insurance Compact among states
that would use a single filing and approval system for life, annuities,
disability income, and long-term care insurance products.
Uncharacteristically of the NAIC twelve states voted to oppose and one
abstained. A letter of opposition raising several fundamental issues and
signed by all 14 Funded Consumer Representative and many other consumer
groups from around the country was delivered to the NAIC prior to the
vote to adopt the Compact:
The Compacting arrangement inappropriately transfers authority from each
state 's Insurance Commissioner to un-elected officials and employees of
a centralized Compact Commission and is unaccountable to the
legislature, taxpayers and consumers of any state.
Companies can choose their regulator by opting to have policies approved
under the standards of the Compact or by a particular state, creating a
race to the bottom of regulatory standards.
States on the other hand must be granted approval by other Compact
members to opt out of the Compact once they join.
The Compact uses a single set of product standards developed by the NAIC
to approve policies that will be sold in the member states,
circumventing stronger individual state standards and requirements.
The NAIC subsequently established and funded and separate non-profit,
The Interstate Insurance Product Regulation Commission (IIPRC) that is
authorized to review insurance company filings for life, annuity,
disability income and long-term care products under a single set of
rules with a promised 60-day turnaround time. Approved products can then
be sold in any member state without complying with the rules of that
state. Consumer complaints about those products will be referred back to
Each member state has one representative member on the IIPRC. The IIPRC
operates under a Management Committee composed of 14 member states
selected by a complicated formula based on the premium volume and market
share of each product sold in the member states.
Future improvements to NAIC Models affecting these products, and in some
cases rates that are approved under the Compact, are much less likely
because the Interstate Compact concentrates the power of the industry in
a much smaller group of states that administer the Compact. Any changes
in the Models that control each product standard will have to be
negotiated with the Compact.
Bypassing California Law
Changes to insurance law in California are the result of bad practices
within the industry. Legislative reforms only occur following a
documented pattern of bad practices, and only when those practices are
made public in enough numbers to cause public outrage. Hard fought
reforms enacted in California were diminished by the enormous advantage
of the industry in our legislative process. In spite of that California
has some of the nation's strongest consumer protections and regulatory
requirements for companies, products, and agents selling long-term care
insurance in particular.
Those standards will have been enacted in vain if SB 1434 passes.
California's standards and requirements will not apply to policies filed
and approved through the Compact. Instead cheaper, stripped down
policies meeting far less stringent requirements approved under the
Compact will unfairly compete with products, if any, that are approved
under state law and effectively canceling out all our hard won efforts
to improve the products consumers buy to help pay for their future long
term care needs. Because those policies will be exempt from our rate
stability requirements future rate increases will also be more likely.
The streamlined system of an Interstate Compact benefits the insurance
industry because it is supposedly more efficient than state systems that
often take much longer to approve policies before they can be sold.
However as insurance Commissioner Sandy Praeger from Indiana stated
recently in her role as President of the NAIC, commenting on federal
efforts to establish a federal regulatory system for insurance, "When
companies refuse to comply with state laws or offer questionable
products, it takes time to review and correct their work to make sure
that products deliver the benefits promised to consumers." She also
noted that when products meet the requirements of state law the approval
process is much shorter.
If passed SB 1434 will delegate the responsibility for approving forms,
and in some cases rates, for life, annuity, disability income and
long-term care insurance policies that are now approved by California
Department of Insurance employees under the regulatory authority of the
insurance Commissioner in compliance with state law. Insurance products
filed with and approved by the Compact will meet a single set of product
standards developed by the NAIC but circumvent California's tougher laws
leaving consumers at the mercy of an independent approval process
conducted through an out of state private non-profit exempt from our
laws and regulatory process. This is bad public policy for Californians.