State Insurance Regulation: Efforts to Streamline Key Licensing and Approval Processes Face Challenges
Published: 2002-06-18T00:00:00

Fast Facts:

Highlights:
section_title: What GAO Found
paragraphs: The National Association of Insurance Commissioners (NAIC), through its Accreditation Program, has made considerable progress in achieving uniformity among state insurance regulators. In addition, competitive pressures from further consolidation in the financial services sector and enactment of the Gramm-Leach-Bliley Act has focused attention on regulator reforms in the insurance industry. NAIC's Producer Licensing Reciprocity and Uniformity initiative aims to streamline the licensing process for selling insurance in multiple states. State regulators are also trying to streamline regulatory processes to bring new insurance products to market more quickly. NAIC's Speed to Market initiative focuses both on developing a more centralized filing and approval process for life and health insurance products and on improving existing state-based approval processes for other types of products. Finally, NAIC's National Treatment of Companies initiative aims to facilitate the licensing process for conducting business on a multistate basis. However, NAIC and the states face significant challenges in implementing their initiatives.

section_title: Letter
paragraphs: We are pleased to discuss our observations to date of ongoing efforts to  develop and implement more uniform regulatory processes within the  insurance industry. We have long held the view that state insurance  regulation can be enhanced through greater uniformity. In the past, we  have encouraged insurance regulators to implement more uniform  regulatory standards, usually in the context of financial oversight. Over the  past decade, the National Association of Insurance Commissioners  (NAIC), through its Accreditation Program, has made considerable  progress in achieving greater uniformity among state insurance regulators  in carrying out their financial solvency oversight responsibilities. More  recently, competitive pressures stemming from further consolidation of  industries in the financial services sector and enactment of the Gramm- Leach-Bliley Act (GLBA) has kept attention focused on regulatory reforms  in the insurance industry.
Many insurance industry participants advocate more uniform standards as  a way to help streamline regulatory processes in an effort to make  conducting business on a multistate or nationwide basis easier. Of  particular interest are those processes related to licensing individual  producers (agents and brokers) who sell insurance, approving new  insurance products that insurers wish to market, and licensing companies  to sell insurance. NAIC has undertaken several initiatives designed to  streamline these regulatory processes. As requested, this statement  focuses on three initiatives, highlighting their status to date, the issues  encountered, and their prospects for success. These initiatives are  commonly referred to as:
Producer Licensing Reciprocity and Uniformity,    Speed to Market, and    National Treatment of Companies.
NAIC’s Producer Licensing Reciprocity and Uniformity initiative aims to  streamline the licensing process for producers that desire to sell insurance  in one or more states in addition to their state of residence. GLBA calls for  a majority of states to either adopt uniform producer licensing laws or  reciprocate with other states in the licensing process by November 2002.  If the states fail to act, GLBA establishes a body called the National  Association of Registered Agents and Brokers (NARAB), which would  take over producer licensing functions from the states. NAIC intends to  satisfy GLBA’s reciprocity provisions first, believing that reciprocity will  be easier to achieve in the near term, followed by actions to improve  uniformity in the producer licensing process. Preliminary indications  suggest that NAIC may be close to certifying enough states to satisfy  GLBA’s requirements. However, some state insurance departments in  relatively large markets may not be eligible for certification, as they are  not willing to lower their standards on certain licensing requirements such  as criminal history checks using fingerprint identification. Industry  representatives and NAIC acknowledge that until the states with relatively  large insurance markets reciprocate in the producer licensing process, this  initiative will not be fully successful.
State regulators are also trying to streamline regulatory processes to help  bring new insurance products to market more quickly. NAIC’s Speed to  Market initiative has focused both on developing a more centralized filing  and approval process for some types of life and health insurance products  and on improving existing state-based approval processes for other types  of products. NAIC’s Coordinated Advertising, Rate, and Form Review  Authority (CARFRA), a regulatory entity composed of state insurance  regulators, is the mechanism through which they have tried to implement  the concept of a single point of product filing and approval. However, a  recent trial of CARFRA with 10 participating states revealed that insurers  were not attracted by it. Many observers commented that CARFRA failed  because companies still had to satisfy numerous individual state  requirements, or deviations, in addition to the basic CARFRA review  criteria. NAIC is now attempting to overcome this problem by developing  an interstate compact, a legal mechanism under which states would cede  product review and approval authority for certain types of insurance  products to a regulatory commission, allowing it to eliminate deviations  the individual states are unwilling to remove on their own. Other Speed to  Market improvement efforts are directed toward existing state-based  systems. Chief among these has been the development and  implementation of the System for Electronic Rate and Form Filing  (SERFF). This system offers insurers the means to submit information  such as rate and policy form data on proposed products electronically to  regulators to help reduce the processing time associated with product  filings. However, industry representatives continue to emphasize their  desire for more streamlined product reviews and approvals that go beyond  technical improvements to the rate and form filing process.
NAIC’s National Treatment of Companies initiative, renamed National  Treatment and Coordination, aims to facilitate the licensing process for  companies desiring to conduct business on a multistate basis. Many of the  same issues encountered under the Speed to Market initiative have also  surfaced in this initiative. NAIC and state regulators largely abandoned  initial efforts to create a more centralized insurer licensing and oversight  process in favor of improvements to existing state-based licensing  processes. The primary accomplishment of these improvement efforts to  date has been the implementation of a common insurer license application  form, the Uniform Certificate of Authority Application (UCAA). Currently,  NAIC and state regulators are trying to reduce the number of additional  state deviations beyond the UCAA requirements. Again, technical  enhancements to form submissions have outpaced efforts to develop  common review and approval criteria for company license applications.
subsections: section_title: Nationwide Producer Licensing Reciprocity Is Unlikely Without Higher Uniform Standards
paragraphs: In response to GLBA, NAIC has expedited efforts under its Producer  Licensing Reciprocity and Uniformity initiative to streamline and simplify  the process for allowing producers licensed in one state to become  licensed in other states. GLBA required that states enact certain reforms  simplifying and bringing more efficiency to the insurance producer  licensing process. Traditionally, agents licensed in one state generally had  to meet the separate licensing requirements for each state where they  wanted to sell insurance. Since licensing requirements differed  substantially, this requirement imposed significant burdens on producers  in terms of time, effort, and monetary costs.
To comply with GLBA, a majority of the states must adopt either uniform  licensing requirements or reciprocity by November 2002. With reciprocity,  states must accept the decision of another state to approve a license and  may not impose any additional licensing requirements. GLBA also gave  NAIC responsibility for determining whether a state meets the uniformity  or reciprocity provisions. If a majority of regulatory jurisdictions (29 states  and territories) do not meet either the uniformity or reciprocity provisions  by November 12, 2002, GLBA provides for the establishment of NARAB by  the federal government, which would take over producer licensing  functions from the states.
NAIC developed and promoted the Producer Licensing Model Act (PLMA)  to help states comply with GLBA’s reciprocity provisions. To date, many  states have passed laws based on PLMA attempting to comply with  GLBA’s reciprocity requirements. However, NAIC has not yet officially  announced the number of “compliant states” based on its review of the  states’ laws and implementation plans. Meanwhile, some states with  relatively large insurance markets have expressed concerns that will likely  keep these states from implementing fully reciprocal producer licensing  practices. These states appear reluctant to “lower” their standards on  certain antifraud and consumer protection measures, particularly those  related to conducting criminal background checks using fingerprint  identification and bond requirements for producer applicants. NAIC  continues to address these concerns, which were not fully resolved  through PLMA, in its efforts to develop more uniform state producer  licensing requirements.
subsections: section_title: Concerns of Some States Are Likely to Prevent Nationwide Reciprocity
paragraphs: While preliminary indications suggest that NAIC is close to certifying  enough states to meet the GLBA’s legal requirement, other concerns  remain that will likely prevent full reciprocity on producer licensing  matters in all states. Factors that may prevent full reciprocity include  some states’ reluctance to waive certain antifraud and consumer  protection measures and state implementation practices that may be  considered nonreciprocal.
Although a large number of states have passed some form of PLMA, some  states did not remove or waive certain licensing requirements that may  conflict with GLBA’s reciprocity provisions. Our review of the checklists  submitted to NAIC and discussions with industry representatives and  regulators showed that a few states do not appear ready to waive certain  existing antifraud and consumer protection requirements. Most  commonly, these nonresident licensing requirements are related to  criminal history checks (using fingerprint identification) and bond  requirements for some producers. NAIC officials had anticipated that  these requirements would be major areas of disagreement among states.
We observed that some states were reluctant to eliminate their existing  requirement to conduct a criminal history check on nonresident applicants  using fingerprint identification. For example, California’s insurance  regulators said that while the state supports the goals of streamlining and  creating more uniformity in state licensing procedures, California would  not eliminate its nonresident fingerprinting requirement (and other key  existing requirements) in order to satisfy the reciprocity provisions of  GLBA. The regulators believed that eliminating this and several other  existing requirements to achieve reciprocity with other states would  weaken their current standards and consumer protection measures.  In  Florida, a recently enacted PLMA expresses the state’s desire to meet the  reciprocity and uniformity provisions of GLBA but also incorporates  nonresident fingerprinting requirements under its consumer protection  provisions. According to industry officials, some states continue to  maintain fingerprinting requirements despite the passage of some form of  PLMA legislation. Some state officials acknowledged that waiving  nonresident producer licensing requirements to satisfy GLBA’s reciprocity  provisions could theoretically open a window of opportunity for  undesirable individuals to enter the insurance industry. For instance,  states where insurance regulators do not have the authority to conduct  criminal background checks on producer applicants could provide such  access. We have previously expressed concern that many insurance  regulators lack the authority to conduct criminal background checks on  industry applicants (in contrast to regulators in the banking, securities,  and futures industries) and have supported actions to help establish such  authority.
Bond requirements for nonresident producers, intended to protect  consumers and states from financial losses resulting from errors or  misconduct, have also surfaced as a problematic issue in many states.  According to industry observers, bond requirements have proven difficult  to change or remove because they are established in state laws and  regulations. NAIC commented that such requirements may not be  appropriate for a producer seeking to conduct business on a multistate  basis, because they do not take into account current commercial realities  (e.g., a producer’s annual volume of business is not taken into  consideration in determining the amount of a bond). NAIC officials have  also voiced concern about the cumulative impact of individual state  bonding requirements in the context of facilitating multistate producer  licensing.
Another issue relates to the postlicensing requirements producers must  satisfy after obtaining a license. Licensing requirements waived or  removed to satisfy the reciprocity requirements of GLBA could resurface  as postlicensing requirements, undermining the benefits of regulatory  streamlining. In our review of the checklists submitted to NAIC, we found  that many states said they have the authority to waive requirements  relating to nonresident licensing. A handful of states also reported having  postlicensing requirements that could limit or place conditions on  nonresident producer activities. For instance, one state reported that it  could waive evidence of company appointments as an application  requirement but would ask for this evidence as a postlicensing  requirement before the producer could conduct any insurance activity.  Overall, we did not identify any significant use of additional postlicensing  requirements, but such practices could inhibit the implementation of  regulatory reciprocity among states.
section_title: Nationwide State Reciprocity Hinges on Concerns and Participation of Larger States
paragraphs: Although NAIC may be close to certifying enough states to avoid the  creation of NARAB, other efforts to achieve greater uniformity must be  successful before nationwide reciprocity is realized. Some states, often  those with relatively large insurance markets, intend to maintain certain  antifraud and consumer protection measures even though such  requirements may be inconsistent with GLBA’s reciprocity provisions. For  instance, the California Department of Insurance did not support the  adoption of NAIC’s PLMA, designed to satisfy GLBA’s reciprocity  provision, because “the Model Act does not include several important  enforcement tools that are contained in California law presently.” Industry  representatives have emphasized that the larger states need to reciprocate  (accept the licensing decision of other states) before producers can fully  benefit from improvements aimed at streamlining the licensing process to  conduct business in multiple states.
NAIC’s Uniform Producer Licensing Initiatives Working Group is currently  addressing a number of issues related to producer licensing to help states  achieve more uniformity. The group’s areas of work include those related  to background checks, prelicensing education, continuing education, and  definitions for limited lines of insurance. These efforts will also have to  address the concerns of states that have been unwilling to “lower the bar”  on their existing regulatory requirements. Achieving nationwide  reciprocity in the area of producer licensing is tied to the success of these  uniformity efforts. However, it remains uncertain whether or when more  uniform producer licensing practices will be adopted that satisfy the  concerns of those states with the largest insurance markets.
section_title: Product Approval Reforms Use Both Centralized and State- Based Approaches
paragraphs: Through NAIC’s Speed to Market initiative, state insurance regulators are  trying to streamline regulatory processes associated with insurance  product approvals to make products available to consumers more quickly.  A principal aspect of this initiative is to develop a more centralized  product filing and approval process for certain types of insurance  products that are sold on a multistate or nationwide basis. NAIC  established the Coordinated Advertising, Rate, and Form Review Authority  as a vehicle for providing insurers with a single point of filing and  approval. However, insurers balked at the initial CARFRA trial, saying the  process still incorporated too many individual state requirements beyond a  common set of review criteria. In response, NAIC is now exploring the use  of an interstate compact as a mechanism for overcoming the issue of  having to satisfy the product review and approval criteria of each  individual state.
Another aspect of this initiative encompasses efforts to improve existing,  conventional state-based systems. A notable outcome of these efforts is  NAIC’s System for Electronic Rate and Form Filing, or SERFF, which is  designed to expedite the mechanics of submitting product rate and policy  form filings to regulators. Other efforts to streamline product review and  approval processes focus on reducing differences among the states’  product filing requirements and identifying best practices.
subsections: section_title: Industry Was Not Attracted to Initial Trial of CARFRA’s Centralized Review Process
paragraphs: Many insurers, particularly those in the life and health insurance business,  claim they have been at a competitive disadvantage in marketing and  selling investment-oriented products because banks and securities firms— their primary competitors in these product lines—can seek regulatory  approval from a single regulator. In response, insurance regulators have  tried to devise a one-stop filing and approval process for products that will  be sold in multiple states. CARFRA is the mechanism that regulators  devised to offer the industry a single source for product reviews and  approvals.
NAIC launched a pilot of the CARFRA product approval process in May  2001 with a single point of filing mechanism, national standards, and  disclosure of any additional state requirements or deviations. The  CARFRA pilot consisted of regulators from 10 states that agreed to review  new product filings on three types of life and health insurance products:  term life, individual annuities, and individual medical supplements.  CARFRA’s centralized product review and approval process was based on  national standards along with consideration of individual state standards.  NAIC’s goals were to be able to process a product filing within 30 days of  receipt to CARFRA if the product conformed to national standards and to  process any “outlier” filings within 60 days—those product filings that  conformed to the national standards but required further review against  the variances for the states in which the products were to be sold. After  CARFRA’s decision, each state had the option of either accepting or  rejecting the product. The CARFRA process also took advantage of  technology enhancements utilizing SERFF.
Since the launch date, only two filings have been received under the  CARFRA process. According to NAIC, industry representatives said that  CARFRA was not attractive because too many state deviations to the  national standards existed. In general, the larger states participating in the  CARFRA pilot program had the most deviations, often requiring the  submission of additional forms and documentation beyond that necessary  to satisfy the common review criteria. In addition, industry observers said  that CARFRA was abandoned because participation in it was voluntary  and it had no legitimate enforcement authority as a regulatory entity.
section_title: Regulators Are Now Exploring Interstate Compacts to Centralize Product Approval Processes
paragraphs: After rethinking the CARFRA process, NAIC has considered several  alternative methods of streamlining the product approval process. Instead  of totally disregarding the CARFRA process, NAIC opted to restructure it  as an interstate compact, building on the processes and national standards  already developed. NAIC is currently finalizing a proposal for an interstate  compact that would establish a commission known as the Interstate  Insurance Commission for Annuities, Life Insurance, Disability Income,  and Long-Term Care Products to set standards and streamline review and  approval processes for such products. NAIC is currently soliciting input on  a draft interstate compact and intends to finalize a version that state  regulators can vote on at the fall national meeting in September 2002. The  compact would require states to delegate product review and approval  authority on certain products to the new commission. As well as reviewing  and approving certain types of insurance products, this entity would also  have the authority to set standards.
The proposed interstate compact focuses on annuity, life insurance,  disability income, and long-term care products. State insurance regulators  have recognized that some life and annuity products are fundamentally  distinguishable from other types of insurance products (e.g., property and  casualty), since many products sold by life insurers have evolved to  become investment products. Consequently, these investment-oriented  products face direct competition from products offered by depository  institutions and securities firms. According to NAIC, competitive pressures  have provided the impetus to develop more streamlined product approval  processes for certain insurance products. NAIC hopes the commission  established through an interstate compact will help the states implement a  more streamlined product review and approval process.
The new commission would develop and implement national standards for  certain life and annuity insurance products that would supersede the  standards of member states that enact enabling legislation for the compact  (compacting states). These participating states would then consider  adherence to the national standards as having the force and effect of  statutory law. Up to now, the states have not generally eliminated their  individual deviations to a common set of review criteria. Compacting  states must enact the compact into law, effectively ceding their authority  to review and approve the specified insurance products to the  commission. As proposed, the commission provides for the establishment  of a 14-member management committee to manage the affairs of the  commission. Six permanent committee members would represent the  compacting states with the largest premium volume for annuities and life  insurance products. Other compacting states would fill the remaining  board member positions on a rotating basis. Geographic considerations  would also be used in establishing the management committee.  Additionally, the commission can establish product standards only after  legislative enactment of the compact by 12 states, and can review products  and render approvals or disapprovals on products only after legislative  enactment of the compact by 26 states.
The impetus for exploring the use of interstate compacts appears to be an  increased sense of urgency to resolve current product approval issues and  a realization among state officials that regulators have gone as far as they  can to streamline product approval processes after the CARFRA trial  setback. To overcome industry objections to state deviations beyond  CARFRA’s review criteria, state lawmakers would have had to change  their states’ product review and approval requirements to a common,  uniform set of criteria. NAIC concluded that an interstate compact  presented the best way to accomplish uniform product review and  approval standards along with a single point of filing mechanism.
The success of NAIC’s Speed to Market initiative largely hinges on  whether or not a significant number of state legislatures agree to cede  their regulatory authority to a separate entity on certain insurance product  standards and approvals. Proponents of interstate compacts believe such  an approach could be successful if the compact entity develops fair rules,  disclosure and due process requirements, sunshine rules (allowing  regulators to revisit and decide whether to continue with an interstate  compact approach after a specified date), and other informational filing  requirements and processes. In contrast, other industry observers believe  states have little motivation to change to a single point of filing process, in  part because of considerable differences in approaches toward product  approvals and consumer protection measures. It remains uncertain how  many states will pass enabling legislation to establish interstate compacts  for product approval functions or whether states with large insurance  markets will embrace this approach.
section_title: Technology Enhancements Lead Improvements Efforts on State-Based Systems
paragraphs: NAIC’s Speed to Market initiative has also included efforts to improve  existing conventional state-based product review and approval processes.  Regardless of whether a more centralized process is used for certain types  of life and health products, existing state-based review and approval  processes will continue to be used for property and casualty products and  many other life and health products for the foreseeable future. NAIC ‘s  improvement efforts in this area, better known as Improvement to State- Based Systems, aim to enhance states’ rate, form, and advertising review  units by reforming and standardizing their approval processes.
One of the most notable advances in improving state-based product review  and approval processes has been SERFF, which offers a standard  electronic form for new product filings with the states. SERFF enables  regulators to receive, comment on, and approve or reject insurance  industry rate and form filings electronically. SERFF is becoming  increasingly popular, though it is not available for all types of products in  each state. At its summer national meeting, NAIC reported that 50 states  and the District of Columbia were licensed to accept product filings  through SERFF and that 474 companies were licensed to use the system.  Several industry representatives we spoke with acknowledged the merits  of SERFF but explained that it still does not resolve more fundamental  issues related to differences in product review and approval processes  across states, many of which are based on statutory requirements.  Additionally, to the extent that some states do not fully utilize SERFF for  all lines of insurance, the cost benefit is diminished for insurers if they  have to maintain a second paper product filing system as well. NAIC has  also developed the Review Standards Checklist that gives insurers  information on state rate and form filing requirements in a common format  by product line.
Other efforts under NAIC’s Improvements to State-Based Systems focus  on reviewing and eliminating “unnecessary” product filing requirements  that have accumulated over time. In particular, NAIC and state regulators  are trying to identify and reduce those regulations that no longer provide  useful oversight value as well as “desk-drawer” rules that have evolved  over time but that are not specified by statute, such as a requirement to  use a certain type of form.
NAIC has also developed a model law aimed at streamlining the product  approval process for commercial property and casualty insurance. The  Property and Casualty Commercial Rate and Policy Form Model Law,  adopted by NAIC in March 2002, would ease some of the current state rate  and form submission requirements if adopted by the states. The model  recommends a “use and file” regulatory approach for commercial rates  and a “file and use” approach for commercial policy forms. Under this  model law, notices of commercial rate changes would be filed for  informational purposes only and not subject to approval. Commercial  policy forms would be filed 30 days prior to their use and would be subject  to regulatory review and approval. One industry association pointed out  that regulators from two states with large insurance markets said the  model would not be adopted in their states. Trade representatives we  spoke with could not speculate on the model law’s prospects for passage  at the state level, but indicated that its chances for approval faced  challenges because commercial rates have risen substantially in the past  year, exacerbated further by the September 11th attacks.
section_title: “National Treatment” Efforts Now Aimed at Streamlining Insurer Licensing Processes
paragraphs: NAIC’s initiative to foster “national treatment of companies” has been  revised since its inception and is now focused on making improvements to  existing state processes related to insurer licensing. This initiative and  others were highlighted in NAIC’s Statement of Intent: The Future of  Insurance Regulation, endorsed by NAIC in March 2000 in response to  GLBA and changes in the financial services sector. Initially, efforts under  the National Treatment of Companies initiative were directed at  centralizing oversight for multistate insurers. Now renamed National  Treatment and Coordination, the initiative is currently aimed at  streamlining state-based review processes and application submissions for  company licenses. Many of NAIC’s efforts under this initiative have  focused on implementing technology to support a common electronic  application form, the Uniform Certificate of Authority Application, or  UCAA. Like developments under the Speed to Market initiative,  enhancements to the process of submitting forms have outpaced efforts to  develop common review and approval criteria.
subsections: section_title: Improvements in Licensing Insurers Favored over Broader Centralized Oversight
paragraphs: Initially, the National Treatment of Companies initiative encompassed  movement toward a single, unified process for supervising multistate  insurers. Oversight functions such as licensing reviews, financial solvency  monitoring, and market conduct oversight would have been conducted  through a more centralized, streamlined process. However, as we  previously reported in 2001, state regulators largely abandoned the goal of  centralizing regulatory oversight for multistate insurers under this  initiative and focused their efforts on improving existing company  licensing processes.  Some efforts to streamline other regulatory  processes for large, multistate insurers have been shifted to other NAIC  working groups. For instance, NAIC is undertaking an effort to better  coordinate and execute financial analysis and examination activities  among regulators that oversee affiliated insurers from multiple states  under a holding company structure.
From its inception, NAIC and state regulators tried to devise an  operational concept for a “national treatment” program that would offer  insurers a state-based system that could provide the same efficiencies in  many areas of oversight as a federal charter for insurance companies.  Many of the options considered were based on a centralized regulatory  function that often allowed the insurers’ state of domicile to perform  regulatory activities on behalf of the other states. State regulators  ultimately rejected a national treatment concept covering a broad array of  regulatory oversight functions based on deference to insurers’ domiciliary  state. Furthermore, a planned test of a national treatment program in 2001  was cancelled. Activity on this initiative is now focused on streamlining  existing state-based company licensing processes for the benefit of  insurers that wish to conduct business in multiple states.
section_title: Application Enhancements Have Outpaced Efforts to Develop More Uniform Insurer Licensing Process
paragraphs: Current efforts under NAIC’s National Treatment and Coordination  initiative are focused on developing more streamlined state-based  application and review processes for insurer licensing. Much of NAIC’s  work on this initiative centers on the implementation of a common  electronic application form, the UCAA. According to NAIC, this form is  now available for use in all states. Closely tied to the development of the  UCAA are efforts to develop a more common, uniform set of review  criteria for insurer applications.
The UCAA offers insurance companies a web-based, electronic application  form to obtain a license in any state. Although the application would still  be submitted to and reviewed by individual state insurance departments,  the format would remain the same and could be submitted electronically.  The UCAA provides formats for newly formed companies seeking a  Certificate of Authority in their domicile state, for existing companies  desiring to expand their business into other states, and for existing  insurers that want to amend their existing Certificate of Authority.
While the technology supporting a common application form has been  developed, regulators have yet to agree on a common set of review criteria  related to insurer licensing. In the absence of uniform criteria, insurers  must separately submit supplemental applications beyond the UCAA  information to individual states, often in paper form. Industry  representatives maintain that these separate application requirements  negate some of the benefits of using the UCAA form rather than  conventional state application forms.
NAIC and state regulators continue striving to develop more uniform  review criteria for licensing insurers. In April 2002, NAIC provided  documentation on 91 additional state-specific requirements beyond those  in the UCAA application. Again, as was the case with the other initiatives,  a principal issue in developing a common set of licensing review criteria  has been the challenge of addressing each state’s individual requirements.  Through its Accelerated Licensure Evaluation and Review Techniques  (ALERT) program, NAIC and state regulators are trying to reduce these  additional state requirements (by 40 percent this year), particularly those  not based on state statutes. While efforts to implement UCAA have been  successful from a technical perspective, its common use in conjunction  with a more standardized licensing review process has not yet materialized  and remains uncertain.
section_title: Conclusions
paragraphs: In this statement, we have discussed three of the initiatives outlined in  NAIC’s Statement of Intent for regulatory modernization—licensing  nonresident producers (Producer Licensing Reciprocity and Uniformity),  approving new products (Speed to Market), and coordinating the oversight  of companies that operate in multiple states (National Treatment of  Companies). While it appears that NAIC is close to certifying enough  states to meet GLBA’s reciprocity requirements before November 2002 to  avoid the creation of NARAB, several states, including some of the largest,  either will not have full reciprocity or will satisfy this requirement only by  temporarily waiving—not eliminating—statutory requirements for  nonresident producers. Similarly, the states’ effort to streamline the  product approval process—CARFRA—failed largely because, even in the  10 states that conducted the pilot, individual states would not give up  state-specific requirements that they believed were important. Finally, as  we pointed out in our earlier reports, the original objectives of National  Treatment—providing regulatory treatment for “national companies”  comparable to that under a single federal regulator—were quickly  narrowed to focus on the implementation of the UCAA, a single  application form that companies can submit to multiple states when  applying for a license to sell insurance. Even in the case of the UCAA,  which has been adopted by all states, individual states have retained  additional state-specific requirements because they believe that the UCAA,  by itself, lacked some important features, such as fingerprinting of  company principals.
While the specific details of state regulators’ actions in each of these areas  have varied, there have been similarities in the pattern of accomplishment.  In each case, improvements, sometimes dramatic, have been made in  efficiency by streamlining and applying technology, for example,  standardizing forms and using technology to submit applications for  licensing or product approval. There has been considerably less success in  reaching agreement on the more substantive underlying issues. In each  case, some states that consider themselves to be stricter or to have more  consumer protections have been reluctant or have refused to lower their  standards. If the objective of NAIC’s agenda of regulatory reform and  modernization is simply to have all states agree, then what has occurred  thus far may be considered a failure. However, if the objective is more  uniformity and reciprocity with an overall improvement in regulatory  performance, then the holdout states may be the only defense against the  weakening of both regulatory oversight and consumer protections. We do  not suggest that every individual state deviation or objection is  appropriate or desirable. However, if some states did not object to giving  up fingerprinting, for example, as a means of conducting in-depth criminal  and regulatory history background checks of agents or company owners  and management, consumers would likely be more at risk and regulation  would be less effective. In that case, neither uniformity nor reciprocity  would represent regulatory progress.
For its part, we believe NAIC has made a concerted effort in promoting  more uniform regulatory processes and requirements. NAIC has also  demonstrated successes in implementing technology to improve  efficiencies in licensing and product approval processes. Now, continuing  success on many regulatory streamlining efforts desired by industry  depend on state legislatures’ willingness to trust other regulatory entities,  either other states or entities such as the commission created by the  compact, with certain regulatory functions and decision-making authority.  Many states, often with the largest insurance markets, are not likely to  take such a step unless they are convinced that other states and regulatory  entities operate under a set of standards comparable to their own.