Strong support for legislation that would create a streamlined nonresident producer licensing system was voiced today at a Senate hearing by officials representing the insurance industry’s primary agent and broker trade associations.
And, the Insurance Retirement Institute, which represents life insurers who sell tax-advantaged products, released a study in connection with the hearing indicating that maintaining state insurance licenses across multiple jurisdictions is a regulatory obstacle that may impede the sale of retirement income products.
The IRI said its study found that, “Considering that most financial advisors, 83 percent, are licensed in multiple states, the redundant processes are viewed as a burden to financial advisors.”
“Time spent on redundant licensing requirements is time not spent servicing clients and focusing on their needs,” said IRI President and CEO Cathy Weatherford.
“The time has come to advance NARAB II. This bipartisan and common-sense legislation promotes the efficient and cost-effective licensing of thousands of financial advisors across the country, while maintaining important consumer protections.”
She urged Congress in her statement to support and advance this legislation to establish a streamlined licensing process, and at the same time, retain states’ authority to regulate the marketplace.”
In another statement released in connection with the hearing, Rob Smith, president of the National Association of Insurance and Financial Advisors, said NAIFA “encourages and supports” enactment of what is now called “NARAB II.”
Smith said the legislation is “a common-sense approach to eliminate the duplicative and burdensome state-by-state non-resident licensing.”
He said the legislation “will be a win for insurance consumers and for agents both, reducing unnecessary costs and establishing standards that exceed existing requirements.”
Baird Webel, a specialist in financial economics at the Congressional Research Service, also testified at the hearing. He said during questioning that creating the NARAB system would lead to increased competition in the insurance industry.
During questioning, Webel sought to reassure members of the committee that the bill “is not a not a federal takeover of the [insurance regulatory] system.”
But, he acknowledged, “that there are insurance legislators out there in the country that do not trust the federal government that much.”
In other testimony, property and casualty trade groups also expressed strong support.
“The foundation of state regulation remains strong and offers considerable benefits, but the difficult truth is that sufficient progress on producer licensing reform and similar marketplace access issues has not been achieved,” said Jon Jensen, president of Correll Insurance Group, Spartanburg, S.C. and chairman of the Government Affairs Committee of the Independent Insurance Agents and Brokers of America.
“The need for effective licensing reform is greater than ever,” he said.
The legislation is S. 534, the National Association of Registered Agents and Brokers Reform Act of 2013. It was introduced in the Senate last week by Sens. John Tester, D-Mont., and Mike Johanns, R-Neb.
Companion legislation, H.R. 1155, has been introduced in the House by Reps. Randy Neugebauer, Tex., and David Scott, D-Ga..
The hearing was held by the Securities, Insurance and Investment Subcommittee of the Senate Banking Committee. Tester is chairman and Johanns ranking minority member of the panel.
In his opening statement, Tester said, “I’m looking forward to hearing from all of our witnesses this afternoon about the impact of NARAB legislation, its evolution over time and its potential impact on consumer protection, market competition and the state system of insurance regulation.
“I would think insurance agents around the country would be desperately clamoring for something like this," Johanns added.
And, based on revisions to prior versions of the legislation, an official of the National Association of Insurance Commissioners also voiced support.
“Today’s bill contains improvements over versions introduced in previous Congresses, and hopefully with support from both regulators and producers, it will continue to attract bipartisan co-sponsors and votes as it works its way through the legislative process,” said Monica J. Lindeen, Montana state auditor, Securities and Insurance commissioner and NAIC vice president.
“The NAIC recognizes that streamlined nonresident producer licensing is an important goal, but I want to emphasize that efforts to do so must not undermine current state authorities to protect insurance consumers and take enforcement action against malfeasant producers,” Lindeen said.
“State insurance regulators take our consumer protection responsibilities very seriously, and our support of this legislation is contingent on the preservation of our ability to carry out that mission as we regulate our markets and enforce state insurance laws,” she added.
“Nonresident producer licensing is a growing bureaucratic issue for me and my colleagues,” added Scott Trofholz, president and CEO of Harry A. Koch Company, and testifying on behalf of the Council of Insurance Agents and Brokers.
“We believe that creation of National Association of Registered Agents and Brokers is the best means through which we can achieve comprehensive producer licensing reform,” Trofholz said.
The IRI study is part of a research initiative to identify regulatory barriers that impede broker-dealers’ ability and financial advisors’ willingness to sell lifetime income products.
IRI officials said in a statement released at the hearing that the study found that 80 percent of broker-dealers said state regulations have a negative effect on the ease of conducting annuity sales. In fact, while 46 percent of broker-dealers say they would like to sell more annuities, 83 percent of broker-dealers and 76 percent of financial advisors believe it takes considerably more time to sell annuities compared to other investments.
IRI officials said that its study found that the average financial advisor spends nearly 22 hours per year to complete continuing education requirements and licensing renewals to sell annuities — compared to just under 16 hours to complete continuing education requirements and licensing renewals to sell securities.
Additionally, seven in 10 broker-dealers believe that state insurance licensing can be ambiguous or poorly defined, and eight in 10 broker-dealers believe that state insurance regulations are duplicative, the IRI study found.
In his testimony, Trofholz said that the CIAB believes “that creation of NARAB is the best means through which we can achieve comprehensive producer licensing reform.”
He said NARAB II “creates a national ‘passport’ for such licensure.”
In his testimony, Jensen said that in order to join NARAB, an insurance producer must be licensed in good standing in his/her home state, undergo a recent criminal background and satisfy the criteria established by NARAB.
He noted that a criminal background check was “long a criteria requested by the NAIC.”