Producer Licensing and NARAB II
A provision in the federal Gramm-Leach-Bliley Act of 1999 (GLBA) sought to streamline producer licensing by requiring the states to enact certain reforms to the insurance producer-licensing process. The provision was designed to create a new organization called the National Association of Registered Agents and Brokers (NARAB) if greater state producer-licensing uniformity or reciprocity was not achieved. The GLBA enactment sparked a nationwide movement to implement sweeping reforms to simplify and bring more efficiency to the producer-licensing process. GLBA offered two possibilities to the states if they wished to avoid the creation of NARAB: either reciprocity or uniformity of laws and regulations governing producer licensing. After many discussions, state insurance regulators agreed to concentrate on reciprocity.
To satisfy the GLBA mandates, the NAIC worked to increase licensing reciprocity though widespread adoption of the Producer Licensing Model Act (#218, or PLMA). Although enough states complied with reciprocity provisions to keep NARAB from coming to life, there remain several large states that have not yet become reciprocal. The absence of these major markets has inhibited the implementation of national licensing reciprocity and the ability of agents to obtain licenses in all of the states.
In May 2006, a revised version of the national licensing proposal—the National Association of Registered Agents and Brokers Reform Act (or NARAB II as it is being commonly called)—was introduced in the U.S. House of Representatives. The bill would immediately establish NARAB to serve as a clearinghouse for producers who wish to do business in multiple states. NARAB would not be part of, or report to, any federal agency nor will it have any general regulatory power. It is designed to allow the states to retain their regulatory authority over marketplace activity and consumer protection, while simplifying multi-state licensing for producers. NARAB II has received strong support from producer trade groups. The NAIC supports the same goals of efficient and uniform agent licensing as the sponsors and supports the NARAB II Senate bill (S. 2342) introduced by Senators Tester and Johanns in April 2012.
• PRODUCER LICENSING
Insurance agents and brokers (collectively, “producers”) must be licensed to sell, solicit or negotiate insurance and must comply with various state laws and regulations governing their activities. There are currently more than 2 million individuals and more than 500,000 business entities licensed to provide insurance services in the United States. State insurance departments oversee producer activities as part of a comprehensive regulatory framework designed to protect insurance consumer interests in insurance transactions.
Traditionally, each state had its own licensing requirements. Producers licensed in one state generally had to meet the separate licensing requirements for each state in which they wanted to sell insurance. Historically, licensing requirements varied from state to state and producers had to submit the same (or similar) information each time but in different formats or different information, depending on each state’s requirements. This imposed significant time and monetary costs on producers, their affiliated agencies and each state insurance department. Consequently, many in the insurance industry advocated for more uniform standards to help streamline the regulatory process and to help make conducting business on a multi-state basis more efficient without diminishing important consumer protections.
• GLBA / NARAB
The Financial Modernization Act of 1999—also called the Gramm-Leach-Bliley Act—caused a seismic shift in the financial services industry. While GLBA affirmed that the states regulate the business of insurance, the major impact on the insurance industry was the implementation of a provision requiring states to pass meaningful reforms aimed at reciprocal or uniform licensing laws. Uniformity relates to a state having adopted uniform resident licensing standards, while reciprocity addresses non-resident (out-of-state) licensing (e.g., producers easily obtaining non-resident licenses outside their resident state).
The implementation of NARAB was proscribed by GLBA and included a series of “act or else” provisions that encouraged the states to simplify the licensing process. The avowed purpose in adding NARAB to the financial services bill was a call for modernization in the producer-licensing process. NARAB would have been a private, nonprofit corporation established under the laws of the District of Columbia, not an instrument of the federal government.
The federal statute required a majority of jurisdictions to achieve either reciprocity or uniformity in non-resident producer licensing by November 2002. More specifically, Section 321 of GLBA required at least 29 jurisdictions to enact: (1) uniform laws and regulations governing the licensure of individuals and entities authorized to sell and solicit the purchase of insurance within the state; or (2) reciprocity laws and regulations governing the licensure of non-resident individuals and entities authorized to sell and solicit insurance within those states. If fewer than 29 jurisdictions met one of these standards, the GLBA would establish NARAB to assume certain licensing functions from the states.
State insurance regulators opted to pursue reciprocity among the states for non-resident agent licensing first, followed by actions to improve uniformity in the producer licensing process. In December 1999, the NAIC created the NARAB Working Group to help the states implement the requirements of GLBA. Consistent with the NARAB requirements, the NAIC adopted the Producer Licensing Model Act (#218, or PLMA) in February 2000 to help the states comply with GLBA’s reciprocity provisions.
The PLMA provided a blueprint for the states to follow in order to satisfy the statutory requirements of GLBA. It set forth basic non-resident licensing requirements that mirrored the reciprocity provisions set forth in GLBA. Work on the PLMA took place prior to the passage of GLBA and was quickly amended to comply fully with the NARAB reciprocity standards. Adoption of the PLMA was a major step toward achieving reciprocity by November 2002, as it provided for streamlined administrative licensing requirements, reciprocal recognition of continuing education, and created uniform standards for key areas of producer licensing.
The Working Group developed a framework for measuring whether a state is reciprocal and consistent with the GLBA’s reciprocity requirements. In August 2002, the NAIC membership determined that 35 jurisdictions initially had met the non-resident producer licensing reciprocity requirements under GLBA and, as a result, NARAB was never created.
• PRODUCER LICENSING ASSESSMENT
In 2007, the NAIC identified producer-licensing reform as one of the NAIC’s key strategic issues and conducted a national producer-licensing assessment to evaluate compliance with the reciprocity and uniformity provisions of GLBA. The assessment was intended to verify that the states previously certified as reciprocal still met the reciprocity requirements under the standards established by the NARAB Working Group in 2002.
The assessment team consisted of volunteer insurance regulators, including commissioners and senior-level staff from insurance departments and staff from the NAIC. Over a short three-month period, the team conducted on-site visits to 50 states, the District of Columbia and Puerto to review certain components of each jurisdiction’s producer-licensing laws, practices and processes. Following the assessment, the NAIC published the “Producer Licensing Assessment Aggregate Report of Findings” in February 2008. The report provided a comprehensive assessment of the producer-licensing laws, practices and processes throughout the United States and identified areas where the states' reciprocity and uniformity initiatives needed improvement, along with areas where such efforts had been successful.
The report found that all 35 states previously certified by the NARAB Working Group remained in compliance with the 2002 reciprocity standards. The report also found that additional jurisdictions were eligible for certification due to changes in their laws, regulations and practices. Following the release of the report, the NAIC Executive Committee reconstituted the NARAB Working Group to update and revise the NAIC’s reciprocity standard. The Working Group released a report in 2011 listing 40 jurisdictions as meeting the new standard. The Executive Committee also charged the Producer Licensing Working Group to begin work on a producer licensing handbook. The first version of the NAIC State Licensing Handbook, which provides guidance to state insurance departments on how to administer a producer-licensing program, was adopted by the NAIC in 2009 and released in 2010.
Long before GLBA, the NAIC initiated several efforts to make producer licensing more uniform. The National Insurance Producer Registry (NIPR) was established by the NAIC as a non-profit affiliate in 1996 to develop and operate as a national repository for producer-licensing information. NIPR is part of an ongoing effort to streamline and modernize the various processes involved with producer licensing. It is an electronic system that tracks ongoing licensing changes from state to state and has been viewed as an alternative to NARAB. The adoption and use of NIPR is voluntary on a state-by-state basis. Currently, NIPR receives data from all 50 states, Puerto Rico and the District of Columbia.
Because producers operate in multiple jurisdictions, the states must coordinate their efforts to track producers and prevent violations. NIPR electronically implements the uniform producer-licensing policy developed by the NAIC through a comprehensive electronic database of producer information. It links participating jurisdictions’ regulatory licensing systems into a single clearinghouse for all producer-licensing data, and is updated daily. NIPR serves as a gateway of communication between state insurance regulators, insurers and producers to facilitate electronic exchange of vital information related to licensing appointments, terminations, changes of address and other important information. Prior to NIPR, such information was inefficiently exchanged by paper submissions.
NIPR has made licensing faster and easier. The format makes it easy for agents and brokers to apply online for non-resident licenses. Usage has increased over the years with advances in technology. Automation has made it possible for many producers to obtain their non-resident licenses within 48 hours of electronically filing an application. In addition, the states also administer continuing education programs to ensure that agents meet high professional standards.
• NARAB II
NARAB II WOULD:
- Establish NARAB as a national, nonprofit producer-licensing corporation.
- Encourage NARAB to develop one set of membership requirements.
- Provide producers who are licensed in various lines in their home state with the ability to conduct business in those lines in any state.
- Allow the states to maintain regulatory jurisdiction over consumer protection, market conduct and unfair trade practices.
While much progress has been made to improve uniformity and streamline non-resident producer licensing, there has been concern that the envisioned uniformity and reciprocity was never fully achieved. Despite the 2008 report’s conclusion of widespread compliance with the GLBA reciprocal non-resident licensure requirements, critics argue that the larger insurance markets (i.e., California, Florida, and New York) have not established licensing reciprocity. These states with relatively large insurance markets have continued to maintain certain consumer-protection measures (such as criminal history checks using fingerprint identification) that are inconsistent with GLBA’s reciprocity provision. Industry representatives argue that, until these large markets become reciprocal, the initiative for producers to conduct business in multiple states has not been fully successful.
In March 2011, the National Association of Registered Agents and Brokers Reform Act (H.R. 1112) was re-introduced in the U.S. House of Representatives. The bill has been put forth on a bipartisan basis and has twice passed the U.S. House of Representatives in previous Congresses, only to fade in the U.S. Senate. Subsequently, in April 2012, S. 2342 was introduced in the U.S. Senate, also on a bipartisan basis.
Both bills are called the "National Association of Registered Agents and Brokers Reform Act” (NARAB II), and were introduced by Reps. Randy Neugebauer (R-Texas) and David Scott (D-Ga.) in the House and Sens. Jon Tester (D-Mont.) and Mike Johanns (R-Neb.) in the Senate. The NAIC supports the Senate bill introduced by Senators Tester and Johanns. The Senate bill includes many keys changes sought by regulators in their discussions with producer trade associations, Congressional staff and other stakeholders. The House bill will garner NAIC support if amended to be consistent with the Senate bill.
NARAB II is intended to build on the foundations initiated with GLBA more than a decade ago. However, unlike GLBA, if enacted, NARAB II would create the National Association of Registered Agents and Brokers immediately—even if further reciprocity or uniformity is achieved by state insurance regulators. S. 2342 includes a delayed effective date to allow time for the establishment of NARAB operations.
In sum, NARAB II would establish a central clearinghouse through which producers could seek to do business on a non-resident basis without having to obtain a license from each state individually. For producers, NARAB membership would be optional. Any insurance producer licensed in his/her home state would be eligible to join NARAB, provided the producer satisfied NARAB’s membership criteria and any required background check.
Membership would allow the producer to obtain authority to do business in any state, in any line of insurance they are permitted to by their home state license, with the payment of that state’s non-resident licensing fee. The legislation is intended to be revenue-neutral for states; accordingly, appointment requirements are preserved. Membership would be renewed biennially and S. 2342 specifically would require NARAB to establish membership for business entities as well as individual producers.
NARAB would have the authority to deny membership to any insurance producer who fails to satisfy the membership criteria, has had a license suspended or revoked by a state insurance regulator, or whose national criminal record background check reveals information making that producer ineligible for NARAB membership. S. 2342 includes provisions allowing for pre-notification to state regulators and the NAIC of any producer seeking to do business on the basis of NARAB membership.
NARAB II is also intended to preserve state-based insurance regulation and consumer protections—it does not create a federal regulator for insurance and the states would retain their regulatory authority over consumer protection, market conduct and unfair trade practices. The states also would retain their rights over resident licensing, as well as supervision, discipline and the establishment of licensing fees for insurance producers. S. 2342 includes provisions intended to strengthen the ability of states to regulate their markets, protect consumers and take necessary enforcement action and lessen the potential for federal preemption of state regulatory prerogatives.
The NARAB entity would be governed by a board of directors consisting of state insurance commissioners and representatives of the insurance industry. Under the House and Senate bills, the regulators would comprise a majority of the board, but the Senate bill provides a greater regulator majority. The U.S. president would make the NARAB board appointments, subject to the advice and consent of the U.S. Senate. The NARAB board would generally have the power to set fees to cover the costs of NARAB’s operations and establish standards regarding personal qualifications, continuing education, training and experience. S. 2342 would require the board to establish a strong ethical conduct code related to NARAB’s affairs and operations.
The NAIC has undertaken a number of initiatives designed to streamline producer licensing. The NAIC and its members recognized the benefits of automating the producer-licensing process well over a decade ago, and the states have made huge progress moving from a paper-based, forms-intensive environment to an efficient electronic-processing environment. While uniformity and/or reciprocity for producer licensing has long been a goal for the NAIC and its member jurisdictions, the challenge of greater uniformity and reciprocity still exists. Regulators are aware of many of the issues and are attempting to implement changes to increase uniformity and reciprocity.