Filing Gets Up To Speed

Insurance Networking News, March 2005

Therese Rutkowski, Managing Editor

Ever since the Gramm-Leach-Bliley Act of 1999 removed barriers between insurance companies, banks and securities firms, insurers have been pushing states for regulatory reform. If insurers are to remain competitive, they argue, insurance companies must get products to market faster. But they are stymied by redundant and cumbersome filing, licensing and reporting requirements across the 50 states. What's needed? Uniform laws and streamlined filing and approvals, according to industry sources.

"The NAIC (National Association of Insurance Commissioners) needs to focus on the bread-and-butter issues of regulatory reform," says Lenore Marema, vice president of industry and regulatory affairs for the Property Casualty Insurers Association of America (PCI), Des Plaines, Ill. Chief among those issues is speed to market.

"There are a lot of delays in getting rate and form approvals from the states," she says. "It just takes too long to validate a filing." A lot of states have a prior-approval requirement for new products, when it would be a lot easier for insurers to compete if they could bring their products to market without prior approval, she says. "The states can address any issues (that arise) with market conduct (reviews). Competition works as a regulator. They need to trust it."

That's the free market philosophy behind the State Modernization and Regulatory Transparency (SMART) Act, which U.S. Rep. Mike Oxley (R, Ohio) and U.S. Rep. Richard Baker (R, La.) proposed in September. Unlike the optional federal charter option, which has been debated for several years and is supported by the American Council of Life Insurers (ACLI), SMART would not establish a federal insurance regulator. Instead, the legislation attempts to improve speed to market for insurers by pre-empting state rating laws, creating "nationwide competitive insurance pricing" (see "Reps Propose SMART Reforms," right).

That approach is more appealing to many opponents of a federal regulator, but many insurers remain leery of Congressional involvement. "When you look at what happened when the federal government got involved with TRIA (the Terrorism Risk Insurance Act), you have to wonder if the devil you know isn't better than the devil you may be getting," says one regional director of the Association of Insurance Compliance Professionals (AICP) who declined to be identified. "Sure. I want rate reform, but I don't know if it can be mandated," he says. "And, if it were mandated, I don't know what the repercussions would be." Other federally mandated laws, such as the Risk Retention Act, only created an additional reporting burden and expense for insurers, he notes.

Because of the industry's skepticism toward Congressional action, it's not surprising that reaction (at press time) to the proposed SMART bill was mixed.

• The Independent Insurance Agents & Brokers of America (IIABA) supported the bill.
• The National Association of Professional Insurance Agents (PIA) had not issued a blanket endorsement, but was pleased that the bill did not call for an optional federal charter or regulator.
• The National Association of Mutual Insurance Cos. (NAMIC) is interested in eliminating price controls, but had not endorsed the bill.
• The National Conference of Insurance Legislators (NCOIL) did not support the bill because it could undermine the role of state legislatures and state insurance commissioners.
• And, the NAIC was carefully reviewing the SMART Act and preparing its comments for Congress.

It's too early for the NAIC to state any position on SMART, said Jim Poolman, North Dakota insurance commissioner at a speed-to-market seminar hosted in January by PCI, the NAIC and InSystems Corp., Markam, Ont. "But I can say the NAIC certainly appreciates that Congress is holding our feet to the fire to move forward with insurance regulatory reform."

NAIC's plan

In fact, the Gramm-Leach-Bliley Act prompted the NAIC five years ago to hasten its regulatory reform efforts. As a result, in 2000, the organization issued its "Statement of Intent: The Future of Insurance Regulation." In 2003, it reinforced that commitment with its "Insurance Regulatory Modernization Plan." Then, in 2004, the NAIC issued its "Framework for a National System of State-Based Insurance Regulation."

The NAIC plans to improve speed to market by further developing and promoting its System for Electronic Rate and Form Filing (SERFF), which was designed in the late 1990s to streamline insurers' rate and form filing with the states. The NAIC blueprint also includes development and implementation of an interstate compact for uniform national product standards and a central point of filing.

"Speed to market is a top priority for the NAIC," Commissioner Poolman told the audience of 100 insurance compliance professionals at the January seminar. "Our goal is to protect the consumer-as well as to enable insurance companies to get their products to market quickly." To that end, he advises, "insurers need to continue to communicate their support for SERFF to state regulators."

At this point, most states don't need much more coaxing. All states use it, with the exception of Rhode Island. And Florida has its own electronic filing system called I-File. But all states don't use SERFF for all lines. By 2003, 49 states accepted P&C filings through SERFF, 48 accepted life insurance filings, and 41 accepted health insurance filings, according to the NAIC.

Insurers' use of SERFF is also on the rise. Companies li-censed to use SERFF grew to 1,500 last year--32% of all li-censed insurers. By last year, insurers submitted 151,000 filings through SERFF-up from 5,000 in 2001 when the Web-based version was released.

"When SERFF was first introduced (in the late 1990s), it required a high investment in hardware, and not many states were using it. So it really wasn't worth it," says an insurance compliance manager who declined to be identified. "But now, at $6 to $15 per filing, it's very affordable."

Cost savings

Indeed, although some insurers don't use SERFF because they say it's not cost-effective (25% according to a recent PCI member survey), 30.5% of PCI members do use SERFF--and eight out of 10 of those who use it say it's very or somewhat effective (see "Why Insurers Don't Use SERFF).

For more information on related topics, visit the following channels:

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