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entitled 'State Insurance Regulation: Efforts to Streamline Key 
Licensing and Approval Processes Face Challenges' which was released on 
June 18, 2002.

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GAO: Testimony:

Before the Subcommittee on Capital Markets, Insurance and Government 

Sponsored Enterprises, Committee on Financial Services, House of 


United States General Accounting Office:

To Be Released at 2:00 p.m. EST on Tuesday, June 18, 2002:

State Insurance Regulation:

Efforts to Streamline Key Licensing and Approval Processes Face 


Statement for the Record by Richard J. Hillman Director, Financial 

Markets and Community Investment:


Mr. Chairman and Members of the Subcommittee:

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. [Footnote 1] 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.

Nationwide Producer Licensing Reciprocity Is Unlikely Without Higher 

Uniform Standards:

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 


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 


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.

Most States Have Recently Passed New Producer Licensing Laws:

NAIC’s PLMA provides a blueprint or model for state legislation to help 

bring states into compliance with GLBA, provided it is enacted without 

significant changes. PLMA sets forth the basic nonresident (out-of-

state) licensing requirements that mirror the reciprocity provisions 

set forth in GLBA. [Footnote 2] States adopting PLMA are expected to 

grant licenses to nonresident applicants who have met the basic 

reciprocity requirements. To address any additional state requirements 

beyond the basic reciprocity requirements, PLMA also contains a waiver 

provision (in Section 16) that grants insurance commissioners authority 

to waive additional requirements for nonresident applicants. For 

instance, in Texas, the Insurance Commissioner has been granted 

authority to waive a recently enacted requirement that nonresident 

applicants be fingerprinted, although the waiver can be revisited each 


At its summer national meeting earlier this month, NAIC reported that 

46 states had passed some version of the PLMA. As required under GLBA, 

NAIC must now certify the states that have met GLBA’s reciprocity 

provisions related to producer licensing. NAIC is using a two-pronged 

certification process that encompasses: (1) a legal analysis of each 

state’s legislation and regulation pertaining to producer licensing, 

and (2) a review of checklists or surveys that are being completed by 

each state regulator, describing how the insurance department intends 

to carry out its producer licensing functions. The questions in the 

checklist generally focus on the state’s producer licensing 

requirements, authority to waive requirements, and postlicensing 

requirements. As of June 12, 2002, NAIC had posted checklists from 41 

states containing information on how regulators intended to implement 

their state’s version of PLMA.

Concerns of Some States Are Likely to Prevent Nationwide Reciprocity:

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. [Footnote 3]

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. [Footnote 4] 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. [Footnote 5] 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. [Footnote 6], [Footnote 7]

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 

[Footnote 8] 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.

Nationwide State Reciprocity Hinges on Concerns and Participation of 

Larger States:

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.

Product Approval Reforms Use Both Centralized and State- Based 


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 


Industry Was Not Attracted to Initial Trial of CARFRA’s Centralized 

Review Process:

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.

Regulators Are Now Exploring Interstate Compacts to Centralize Product 

Approval Processes:

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.

Technology Enhancements Lead Improvements Efforts on State-Based 


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.

“National Treatment” Efforts Now Aimed at Streamlining Insurer 

Licensing Processes:

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.

Improvements in Licensing Insurers Favored over Broader Centralized 


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. [Footnote 9] 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.

Application Enhancements Have Outpaced Efforts to Develop More Uniform 

Insurer Licensing Process:

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. [Footnote 10]0 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 



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, [Footnote 11]1 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.

State regulators’ efforts to date suggest that in certain areas, state 

regulators and NAIC may not be able to achieve uniformity through 

common consent (e.g., criminal history checks using fingerprint 

identification, uniform criteria for product approvals and company 

licensing, and others). To the extent this is true, ongoing federal 

oversight and, possibly, federal intervention (as in the case of GLBA’s 

call for NARAB should state action fall short) may be needed to provide 

impetus for positive change and continuing improvement in state 

regulation of insurance.

Contacts and Acknowledgments:

For further information regarding this testimony, please contact 

Richard J. Hillman, Director, or Lawrence D. Cluff, Assistant Director, 

Financial Markets and Community Investment Issues, (202) 512-8678. 

Individuals making key contributions to this testimony include Emily 

Chalmers, Vashun Cole, Rachael Demarcus, Barry Kirby, and Angela Pun.



[1] GLBA gave NAIC, in consultation with state insurance commissioners, 

responsibility for reviewing and certifying the states that have met 

the uniformity or reciprocity provisions. States that agree to 

reciprocate on producer licensing matters agree to accept the licensing 

decisions of other states, even though the requirements may be 


[2] NAIC’s PLMA stipulates that nonresidents shall receive a 

nonresident producer license if they: (1) are in good standing in their 

home state, (2) submit the proper request for licensure and pay the 

required fees, (3) submit the application for licensure they submitted 

in their home state, and (4) reside in a state that awards nonresidents 

producer licenses according to these same requirements.

[3] Related to this debate, we also observed some confusion and 

ambiguity among state regulators over the extent to which additional 

state consumer protection measures will or will not be allowed under 

GLBA (Savings Provision).

[4] The six nonresident producer licensing provisions that California 

Department of Insurance officials cited as critical were those 

requiring: (1) criminal background checks using fingerprint 

identification on applicants, (2) that organizational applicants 

designate a natural person to exercise authorities granted by 

licensure, (3) that a broker maintain a bond on file, (4) that certain 

agents and solicitors file agency appointments, (5) approval of 

fictitious names that applicants intend to use for conducting business, 

and (6) that an agent selling long-term care insurance receive 

specified training.

[5] Florida also has many other requirements it does not plan to 

eliminate. State regulators believe their requirements are necessary to 

protect Florida’s uniquely large elderly population.

[6] Insurance Regulation: Scandal Highlights Need for Strengthened 

Regulatory Oversight, (GGD-00-198, Sept. 19, 2000).

[7] Financial Services Regulators: Better Information Sharing Could 

Help Reduce Fraud, (GAO-01-478T, Mar. 6, 2001).

[8] An appointment refers to the authority an insurer gives to a 

producer to transact insurance business on the insurer’s behalf.

[9] Regulatory Initiatives of the National Association of Insurance 

Commissioners, (GAO-01-885R, July 6, 2001).

[10] At the time, NAIC’s figures did not include additional 

requirements from one other state. NAIC’s breakdown of these additional 

requirements revealed that 30 were required by state statute or 

regulation, 16 were characterized as administrative or informational, 

15 were financially oriented, 10 were required by other state agencies, 

10 were required for identification purposes (most often fingerprint 

identification requirements), and 10 others were miscellaneous.

[11] GGD-00-198 and GAO-01-478T.