Legislature revisits multistate insurance compact: Proposed bill awaiting House consideration could cut red tape and improve speed of products to market

March 21, 2005

The Indiana General Assembly is taking another stab at a bill that could make life easier for some insurance sectors by pushing products to market at a faster clip.

A proposal that would allow Indiana to join a multistate compact for life insurance, disability, annuity and long-termcare products passed the Senate earlier this legislative session and awaits consideration in the House of Representatives.

The bill died there last year. However, new state Insurance Commissioner Jim Atterholt thinks it has a better chance-and more backing from the industry-this time around.

Insurers say Senate Bill 634 offers a crucial competitive advantage. It can take only a month or two for the banking and securities industries to gain the needed approvals to launch a new product like a 401(k) plan or a mutual fund.

In contrast, that approval process can stretch beyond a year when an insurer tries to launch an annuity to compete with those products.

In some states, that delay can last up to two years, according to John Gerni, senior legislative director for the American Council of Life Insurer's Midwestern Region.

"By that time, there may not be the demand for such a product," he said.

Last year, the Indiana insurance department received 1,668 filings for life and annuity products, Atterholt said. Numbers like that often overwhelm the department, and a backlog of several months can develop.

"You take your Indiana experience and multiply it by 50 states and you've got quite a mess on your hands in terms of getting your product to market," he noted.

This proposed compact could shorten that approval time and also unravel red tape, insurers and regulators say. Currently, an insurer needs approval from every state in which it operates before it introduces or sets rates for a new product.

Different states set different standards, sometimes down to the smallest detail. An insurer may have to rewrite a contract "because one state wants the word 'and' and the other state wants the word 'or,'" said Dan Seitz, counsel for the Association of Indiana Life Insurance Companies.

"I'm serious; it's that silly," he said. "You've got to have totally different policy forms. Those are the kinds of things that give insurance folks gray hairs."

The compact creates uniform standards and a single filing point. If one state in the compact approves the bill, they all do.

Indiana would lose no regulatory power and the compact would not conflict with the state's constitution, according to Atterholt. He said each state involved in the compact will help set the product standards, and that may mean tougher ones in some cases.

The commissioner added that either he or the General Assembly could decide to pull Indiana out of the compact at any time.

The 2004 version of this bill bogged down during the same-sex marriage debate that led to a Republican walkout in the House and jammed legislation toward the end of that session. It also had lukewarm industry support because it lacked a key phrase: "full force and effect of law."

That means Indiana law will fully enforce terms of a contract that has a compact-approved policy form in it, Seitz said. That also means insurers can have confidence that a compactapproved product will hold up to legal scrutiny.

The compact legislation is based on a model bill written by the National Association of Insurance Commissioners. So far, 10 states have approved the compact. The association needs a majority of 26 for it to become active.

Indiana's bill was assigned to the House Insurance Committee for review. The chairman, Rep. Mike Ripley, RMonroe, expected it to clear committee and said it may come up for a vote by the full House as early as March 21.

If it does, Atterholt, a former legislator, likes the odds.

"It's a non-partisan issue and ... I think it's a very strong economic development issue," he said.
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