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Consumers, Producers Will Be Major Beneficiaries of Optional Federal Chartering, Study Says

Washington, D.C. (Sept. 10, 2007) Life insurance producers could save hundreds of millions of dollars annually in licensing fees if Congress enacts legislation creating an optional federal charter (OFC) system for the insurance industry, according to a new study.

Moreover, the study says, life insurance consumers would benefit from a system that offers uniformity of market conduct regulation combined with uniformity of products across state lines.

The study by Dr. Laureen Regan, associate professor with Temple University’s Fox School of Business and Management, estimates that the savings in producer licensing associated with moving to an OFC from the current system of exclusive state regulation could range from $268 million to $377 million annually. In addition, an OFC would benefit producers by creating uniform requirements for pre-licensing and continuing education. The study—entitled The Optional Federal Charter: Implications for Life Insurance Producers—was commissioned by the American Council of Life Insurers (ACLI).

“All the objective evidence points strongly in favor of an OFC,” said Frank Keating, president and CEO of ACLI. “An earlier study by University of Georgia Professor Steven Pottier found that life insurers could save up to $5.7 billion annually in compliance costs under an OFC system. Now, Professor Regan’s analysis shows that life insurance producers would also realize substantial savings.”

“Additionally, brokerage general agencies will also see significant cost savings,” said John W. Felton IV, chairman of the National Association of Independent Life Brokerage Agencies (NAILBA). “On average, brokerage general agencies spend $12,600 and 347 hours of staff time annually to be in full compliance with the differing insurance regulations that exist in each state.”

“Of course,” Keating added, “the real beneficiaries would be life insurance consumers. In a highly competitive market, most or all of these savings would be passed on to consumers in terms of lower premiums.”

“Everyone deserves to have access to the best possible life insurance protection for their family,” added Felton. “Unfortunately, with our current system, individuals with the exact same needs cannot gain access to the same life insurance protection, simply because of geography.”

ACLI and NAILBA strongly support the National Insurance Act, legislation introduced in the Senate and the House which would create an OFC system. The Senate bill—S. 40—is sponsored by Sens. John Sununu (R-NH) and Tim Johnson (D-SD). The House bill—H.R. 3200—is sponsored by Reps. Melissa Bean (D-IL) and Ed Royce (R-CA).

Regan’s study notes that while states have been working on uniformity, progress is, at best, incomplete. Only 59 percent of states were in compliance with the pre-licensing education standards of the Producer Licensing Model Act, and only 22 percent were in compliance with the continuing education requirements, as of Dec. 31, 2005.

Similarly, only 30 states had joined the Interstate Insurance Product Regulation Compact—which would create a uniform, single-point system for approval of life insurance products—as of May 30, 2007.

The study adds that the National Insurance Act would establish nationwide uniformity in product approval and create a structure for national market conduct regulation. The result of this would likely be an increase in customer satisfaction.

“States are working hard to establish uniform regulation, but it has been difficult to achieve,” Keating said. “The impetus provided by creation of an optional federal charter may spur the states to achieve true uniformity. Nothing would please us more than to see a reformed, streamlined state regulatory system co-existing with a federal system for the benefit of all consumers.”

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The American Council of Life Insurers (ACLI) is a Washington, D.C.-based trade association whose 373 member companies account for 93 percent of the life insurance industry’s total assets in the United States, 91 percent of life insurance premiums and 95 percent of annuity considerations. In addition to life insurance and annuities, ACLI member companies offer pensions, including 401(k)s, long-term care insurance, disability income insurance and other retirement and financial protection products, as well as reinsurance. ACLI's public Web site can be accessed at www.acli.com.

About NAILBA: The National Association of Independent Life Brokerage Agencies (NAILBA) is a nonprofit trade association with 350 member agencies in the U.S., representing 100,000 producers who deliver more than one billion dollars in first-year life insurance premiums annually. NAILBA is dedicated to fostering the growth of its member agencies by providing educational resources, industry standards and a collective voice for legislative and regulatory efforts. Each of NAILBA’s members commits to a statement of responsibilities to ethically and responsibly serve their clients’ best interests. For more information, visit www.nailba.org.