House Subcommittee Passes NARAB Reform Act

In July, the House Financial Services Subcommittee on Capital Markets marked-up three pieces of insurance legislation, including H.R. 5611, the NARAB (National Association of Registered Agents & Brokers) Reform Act (NARAB II). The other bills considered by the Subcommittee were H.R. 5840, the Insurance Information Act, and H.R. 5792, the Increasing Insurance Coverage Options for Consumers Act.

Agent licensing reform, embodied in the NARAB II bill, is the No. 1 federal legislative issue of the Big “I.”H.R. 5611 would establish NARAB to provide for nonresident insurance agent and broker licensing while preserving the rights of states to supervise and discipline insurance agents and brokers. Reps. David Scott(D-Ga.) and Geoff Davis (R-Ky.) introduced this bipartisan bill in March 2008 and on the day of the Subcommittee markup, aside from Reps. Scott and Davis, there were 47 bipartisan cosponsors of this bill. Prior to its consideration, several insurance industry groups announced their support for this legislation, including the National Association of Insurance and Financial Advisors (NAIFA), the National Association of Mutual Insurance Companies (NAMIC), the Property Casualty Insurers Association of America (PCI) and the Council of Insurance Agents and Brokers (CIAB), as well as a number of individual insurance companies. The National Association of Insurance Commissioners (NAIC) also recently endorsed an updated version of the legislation.

A NARAB subtitle was originally included in the Gramm-Leach-Bliley Act (GLBA), which Congress passed in 1999. GLBA did not provide for the immediate establishment of NARAB but instead included a series of provisions that merely encouraged the states to reinvent and simplify the licensing process. In order to forestall the creation of NARAB, a majority of states (interpreted to be 29 jurisdictions) were required to license nonresidents on a reciprocal basis. The creation of NARAB did not occur because a majority of the states were perceived to have achieved the required level of licensing reciprocity. However, even though NARAB was not created, true national nonresident licensing reciprocity has not been achieved.

H.R. 5611 modifies the original NARAB provisions in GLBA and immediately establishes NARAB as a private, non-profit entity managed by a board composed of state insurance regulators and marketplace representatives. Membership in NARAB would not affect resident licensing, would be voluntary, and would not affect the rights of a non-member agent or broker under any state license. Insurance agents and brokers could remain licensed in the traditional manner, obtaining nonresident licenses on a state-by-state basis if operating in multiple jurisdictions, or they could apply for NARAB membership and one-stop nonresident licensing. States, other than a member’s home state, would also be prohibited from imposing licensing, continuing education, corporate qualification and foreign company registration requirements, among other requirements, on association members.

Through NARAB, individual agent members would continue to pay the licensing fees required by each state in which they choose to operate (with NARAB remitting the fees to the appropriate jurisdictions).NARAB would have the authority to establish a central clearinghouse or utilize the NAIC and/or another entity as a central clearinghouse through which members would be able to disclose their intent to operate in one or more states and pay the licensing fees to the appropriate states. Essentially, membership in NARAB would be the functional equivalent of a nonresident insurance producer license issued in any state where the member pays the required licensing fee. NARAB would not be part of, or report to, any federal agency and would not have any federal regulatory power.

The Big “I” has long supported the use of targeted federal legislation to reform the state system of insurance regulation, and H.R. 5611 is a prime example of such reform. Such a pragmatic approach utilizes the many years of regulatory experience and resources of the states to produce a more efficient and effective regulatory framework.

Tom Koonce (tom.koonce@iiaba.net) is Big “I” assistant vice president of federal government affairs.

2008 Prospects for NARAB

NARAB II passed the Subcommittee by voice vote with little debate in July and at press time, it was unclear whether the legislation would be considered by the full House Financial Services Committee or the full House before the August recess. Given the short time remaining on the congressional calendar this year, it is unclear how far the legislation will proceed in 2008, but the subcommittee’s action is a huge step forward in solving the problems faced by agents in obtaining nonresident licenses. Passage of this bill by this subcommittee also shows that discretely using targeted federal legislation to reform insurance regulation is the most viable solution for modernizing and improving the state system of insurance regulation.

—T.K.