NU Online News Service, March 26, 4:05 p.m. EDT

DENVER–State legislators and insurance regulators at a conference have agreed to work together to find state-based solutions to modernize certain areas of insurance regulation.

Their discussions came at the National Association of Insurance Commissioners (NAIC) meeting here.

Legislators struck a more conciliatory tone in their talks with regulators compared to the previous two national meetings, during which the two parties debated a controversial modernization proposal that would have allowed possible federal preemption of regulation in some states that did not adopt certain uniform standards.

The so-called National Insurance Supervisory Commission (NISC) was an NAIC discussion draft proposal that called for Congressional authorization of a commission, made up of state regulators, that would develop national standards for certain insurance topics.

States that were not members of the proposed commission–and failed to take independent action on uniformity standards developed by the commission within a given time period–would have been subjected to preemption by a federal Office of Insurance Information (OII) or Office of National Insurance (ONI).

Legislation proposed in Congress would create a federal Office of Insurance Information.

State legislators argued that the regulators' proposal would have unjustly preempted state rights and would only be the beginning of federal involvement in insurance regulation.

The NAIC said today during the first meeting of the Regulatory Modernization Task Force that it would reserve the right to pursue such federal action in the future, but that it will now seek state-based and state-driven solutions to regulatory modernization–an aim that won support from the legislators.

Oklahoma Insurance Commissioner Kim Holland, who chairs the task force, said the goal now is to not focus on any specific discussion draft, but to discuss the "what" and the "why" of regulatory modernization, and then get to the "how."

State legislators offered to work constructively with the NAIC to develop uniformity where uniformity is necessary, such as producer licensing, increasing speed to market of products, and regulations for surplus lines.

But New Mexico State Senator Carroll Leavell, R-Santa Fe, said the idea should not be "uniformity for uniformity's sake."

New Hampshire Rep. Brian Patrick Kennedy, D-Hopkinton, said any modernization proposal needs to be even-handed, inclusive–involving legislators and other state officials as well as regulators–and needs to be accountable with proper separation of powers.

He said compacts could possibly be used to achieve uniformity in some areas, pointing to the Interstate Insurance Product Regulation Commission (IIPRC) as an example.

Alabama State Rep. Greg Wren, R-Montgomery, issued a call for solidarity between state legislators, regulators and all others who wish to see the continued regulation of insurance at the state level.

He warned that there is momentum in Washington to begin a "legislative assault" on state regulation, and he contended that proponents of state regulation need to go on the offensive rather than play defense.

Declaring that state regulation has worked well, he said federal efforts at preemption are "trying to put out a fire that does not exist in America today."

He accused proponents of federal involvement–be it outright preemption or an optional federal insurance charter–of using "old and stale arguments" that are misinformed and inaccurate in order to achieve their aims. "The red herrings are flopping on the boats," he said.

Addressing Commissioner Holland's goal of finding out what and why change is needed for state regulation, Dennis Johnson, president and CEO of United Heritage, an Idaho-domiciled firm that comprises a life insurance company operating in 36 states and two small regional property and casualty companies, spoke to various inefficiencies.

He said obtaining certificates of authority to operate in different states "varies widely with no discernable reason." He noted that when seeking to obtain certificates in two different states, it took five months for one state to respond and nearly three years for the other.

Mr. Johnson also cited complications with filing annual financial statements, stating that some states develop their own unique electronic filing processes, adding time, expenses and complications.

He said a computer system problem in one such state resulted in his company having to defend itself against a $10,000 fine even though the information was filed correctly and on time.

SueAnn Shultz, senior vice president and general counsel of IMA Financial Group, who is also part of the Independent Insurance Agents and Brokers of America, spoke to the burden of multistate licensing requirements, and how they add significant costs and drain resources for agents.

Rep. Kennedy, after listening to Ms. Shultz's comments, offered to begin working with the NAIC on producer licensing and reducing the burden on agents.

Commissioner Holland called the task force's first meeting "a great start to what should prove to be a fruitful endeavor."