The NARAB Reform Act

Last month, Reps. David Scott (D-GA) and Geoff Davis (R-KY) introduced H.R.5611, the National Association of Registered Agents and Brokers (NARAB)Reform Act, commonly known as NARAB II. The introduction of this bipartisan legislation by Reps. Scott and Davis is very good news for agents and brokers as it deals with the number one issue for many agencies—the need to streamline the licensing process.

As agencies become larger, the inefficient non-resident licensing system only gets worse. The average independent agency is authorized to operate in at least eight states, and it is not uncommon for small and medium-sized agencies to be licensed in 35 to 50 jurisdictions. Every agent in the country must satisfy only one set of resident requirements, but multi-state licensees are forced to comply with potentially50 sets of nonresident rules. The current licensing system is so complex that many agencies are forced to retain expensive consultants or vendors in order to remain incompliance. Reform is long overdue and it has finally arrived in the form of NARAB II.

The legislation is straightforward: insurance agents and brokers who are licensed in good standing in their home states can apply for membership to NARAB, which will allow them to operate in multiple states more easily. NARAB, a private, nonprofit entity comprised of state insurance regulators and marketplace representatives, will serve as a portal for agents and brokers to obtain non-resident licenses in additional states, provided they pay the required state non-resident licensing fees and meet the NARAB standards for membership. Producers could remain licensed in the traditional manner, but those operating in multiple jurisdictions could choose to apply for NARAB membership and one-stop non-resident licensing. Therefore, membership in NARAB would be voluntary and would not affect the rights of anon-member producer under any state license. The legislation also deals with agency(entity) licensing burdens.

Congress already has endorsed this concept through passage of the Gramm-Leach-Bliley Act (GLBA) in 1999, which would have created NARAB if a number of states did not reach a certain level of licensing reciprocity. Although enough reciprocity was provided to avoid NARAB’s creation, it has become clear that the bar was not set high enough in GLBA, and follow-up legislation is necessary. An updated version of NARAB would provide this much-needed reform.

The bill is very deferential of states’ rights in a number of ways. First, NARAB II only applies to non-resident licensing, not resident licensing. Second, it only deals with marketplace entry not the day to day state regulation of insurance. Third, NARAB would not negatively impact state agent/broker licensing revenues. Finally, and most importantly, NARAB would not be part of, or report to, any federal agency and would not have federal regulatory power.

Tom Koonce (tom.koonce@iiaba.net) is Big “I” assistance vice president for government affairs.


Opposing OFC a Priority

While producer licensing is the No. 1 issue agents will take to the Hill this month during the Big “I” Legislative Conference & Convention, opposing proposals for an optional federal charter (OFC) is still ranks as a top priority. Supporters of OFC use several arguments to explain why they believe federal regulation is needed, but none of these arguments resonate. For example, OFC supporters often point to the potential decline of U.S. capital markets competitiveness as demonstrating the need for OFC, but fail to take into account other U.S. competitiveness concerns, such as high U.S. corporate tax rates, diverse financial reporting standards and U.S. litigation costs, as the true threats to U.S. capital markets competitiveness. OFC supporters also often state that the insurance industry needs to have a dual regulatory system like the banking industry. However, they ignore the fundamental differences between banking and insurance, such as the fact that the banking system has no distribution force or claims process like insurance and that the banking system has products that are national in scope.

Consequently, IIABA strongly opposes OFC legislation, such as the National Insurance Act introduced this Congress by Sens. Tim Johnson (D-S.D.) and John Sununu (R-N.H.) and in the House by Reps. Melissa Bean (D-Ill.) and Ed Royce (R-Calif.). Rather than a one size-fits-all scheme, IIABA advocates for a pragmatic, middle-ground approach that proposes federal legislative tools to fix state insurance regulation by creating amore uniform and streamlined regulatory system. This approach would overcome state-level impediments to reform and build on, rather than dismantle, the states’ inherent strengths—diversity, geographical uniqueness, innovation and responsiveness to consumers—to meet the challenges of a rapidly changing insurance marketplace.

IIABA believes that a variety of federal legislative tools—national standards with state regulation, national reciprocity or multi-state uniformity, incentives and preemption of certain state laws—can be used on an issue-by-issue basis to achieve reform. This approach offers the best solution because it will promote more uniform standards and streamlined procedures from state to state, thereby enhancing marketplace responsiveness while protecting consumers.