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Setting a new policy for insurers


Under the existing system of state regulation of insurers, companies such as Principal Financial Group Inc. can easily wait up to a year or more to get a new insurance or financial product approved by all 50 states.   

“That’s just untenable in today’s market,” said Merle Pederson, Principal’s vice president of government relations.   

Discussions by Congress about unifying the states’ insurance regulations under federal guidelines have been going on since the 1870s, but little has changed in what has been a state-regulated industry.   

Principal is among the insurers advocating a dual state-federal charter system for insurance companies similar to the system in place for banks and mutual fund companies. Pederson said such a change would allow the company to compete on a more level playing field with other financial service companies in the sale of retirement savings products.   

Last week, members of the U.S. House Financial Services Committee met to hear testimony from industry representatives and consumer groups regarding the committee’s proposed framework for insurance regulatory reform.   

Providing a uniform national system that allows companies to get both new products and agents licensed more quickly — while providing consumers with as many products as possible and protecting them from fraud — is the committee’s overall goal. The panel’s chairman, Rep. Mike Oxley of Ohio, is expected to introduce legislation on the subject in the House later this year.   

Iowa Insurance Commissioner Therese Vaughan, who with other state commissioners recently met with Oxley, said she believes Oxley’s intent is to speed up state regulatory reforms that have already begun, not to create another layer of federal bureaucracy.

“I think it became clear to us from hearing from Congressman Oxley that the states are going to have to act faster than they were, or else Congress will act,” she said.

Vaughan said Iowa has made good progress toward reform, hat beginning in 2000. It was among the first states to adopt the uniform agent licensing law, which nearly every state has now adopted. As a result, agents can now be licensed to sell insurance nationally within about three months.

In contrast, company licensing takes a majority of states over six months to complete, with 17 percent of states taking more than two years to complete their reviews.

Vaughan said Iowa was the first of four states to adopt an interstate compact for a uniform process for company licensing, which is also under consideration in about 15 other states.

A separate issue is how reforms would affect the property and casualty side of the business. The Consumer Federation of America wants the committee to reconsider its plan for unified regulation of those insurers in regard to price regulation, saying that preempting state regulation would leave consumers of products such as auto insurance vulnerable to predatory pricing.

Currently, Iowa allows the market to determine premiums on homeowners and personal auto policies, Vaughan said.

“Where there’s a competitive market and people have choices, it would make sense the market is a more efficient way to set rates,” Vaughan said. “My personal opinion is there are areas in Iowa we ought to look at to bring more of a market approach, such as in small-business policies. There are some areas I wouldn’t do that, such as in nursing home liability insurance, where we don’t have a lot of competitors.”

On the life and annuity side, Pederson said Principal wants a federal-state charter option, not just targeted reforms of state standards.

“We believe the optional federal charter is the single best way to address the regulatory reforms that need to be made,” he said. “Having said that, we’re looking at these targeted reforms to see if they could be made to work to address some, if not all, of our concerns. We’re literally in the process of figuring out some language to address that.”   

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