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Insurance compact clears big hurdle: Initiative's aim is to cut red tape, improve speed

May 29, 2006

A nationwide effort that would let some insurance sectors push products to market quicker is set to become reality, after Ohio became the decisive state to enter the consortium earlier this month.

The multistate compact for life insurance, disability, annuity and long-term care products creates a single point of filing for providers. The object is to cut down on the time it takes insurers to seek approval from every state in which they operate before introducing or setting rates for new products.

The process, for example, can stretch beyond a year when an insurer tries to launch an annuity to compete with a 401(k) plan or a mutual fund. In contrast, banks and securities brokers can have their offerings available to consumers within a month or two.

"Most of this is in response to the industry's frustration at having to go to 50 different locations to get products approved," Indiana Insurance Commissioner Jim Atterholt said. "It puts them at a tremendous disadvantage."

Tom Zurek, general counsel for American United Life Insurance Co., concurred. Indianapolis-based AUL, which sells products in 49 states and the District of Columbia, is hamstrung by the current regulations, he said.

"If we sell a product in Illinois, that means Illinois law controls us," Zurek said. "But at the end of the day, we think we will have a much more efficient process. It means an awful lot to us."

Different states set different standards, sometimes down to the smallest detail. An insurer may have to rewrite a contract to appease regulators who want the simplest words replaced.

"[The compact] does cut down on cost, from the standpoint we don't have to deal with the individual states," said Stephen Robertson, senior vice president of compliance and regulatory affairs for Carmelbased Conseco Inc. "It's one-stop filing, and [the states] still have the safeguards that they need."

Indiana will lose no regulatory power and the compact will not conflict with the state's constitution, Atterholt said. Yet, states snubbing the compact remain concerned over sovereignty issues and states'-rights prerogatives.

Indiana lawmakers adopted the compact last year based on legislation modeled after a bill written by the National Association of Insurance Commissioners in Kansas City, Mo.

Passage followed a failed attempt in 2004 that bogged down during the samesex marriage debate that led to a Republican walkout in the Indiana House. It also had lukewarm industry support because it lacked a key phrase: "full force and effect of law."

With the addition, Indiana law will fully enforce terms of a contract that has a compact-approved policy form in it. Moreover, it means insurers can have confidence that a compact-approved product will hold up to legal scrutiny.

The compact became active upon Ohio's joining as the 26th state, creating the necessary majority. But much work remains.

The Interstate Insurance Product Regulation Commission, composed of insurance commissioners from states that belong to the compact, will meet June 13 in Washington, D.C., to iron out further details. Staffing and budgeting requirements are on the agenda.

The aim is to have a staff hired and procedures in place by the first of the year, Atterholt said. The compact could be located in NAIC's headquarters.

Each state involved in the compact will help set product standards, which may mean tougher ones in some cases.

Regardless, Dan Seitz, executive director and counsel to the Association of Indiana Life insurance Companies, is pleased the plan is progressing.

"Hopefully, we'll get much more rapid turnaround," said Seitz, a partner at local law firm Bose McKinney & Evans LLP. "That has become increasingly critical, as the traditional insurance market has morphed into a marketplace that has grown much larger."

Seitz also thinks the compact will benefit the state Department of Insurance by relieving it of the oversight and allowing the agency to focus more on other areas. Indeed, Indiana Gov. Mitch Daniels' administration inherited about an 18-month backlog in health insurance rate and form filings that it has whittled down to six months.

The compact could help the department eliminate the remainder, Atterholt said, by allowing it to shift more resources to the health arena.

"We do have the largest insurance company domiciled in our state," he said, referring to WellPoint Inc., "and we need to be more sensitive to that."

States in line to join the compact yet this year include Massachusetts, Michigan, Minnesota, Missouri and New Jersey, according to NAIC. The District of Columbia could come on board as well.
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