Perhaps not surprisingly, President Trump hasn’t spent much time letting us know his thoughts on the ins and outs of insurance regulation. But to the extent he has a position on the subject, it appears to be that markets will improve and prices will go down if we “get rid of the lines around the states.”
What he has in mind, in so many words, is a kind of regulatory federalism that would involve selling insurance policies across state lines. As it turns out, that’s not the only area of insurance that would benefit from a reevaluation of state lines.
{mosads}Producer licensing—the process through which states approve agents and brokers to sell insurance—is mired in a web of state-by-state regulatory eccentricity that drives up the cost of compliance and, therefore, the cost to do business. As a result, both companies—particularly those who experiment with innovative business models—and consumers shoulder unnecessary expenses.
As one example, a multistate broker who attempts to do business is California is subject to additional conditions and requirements that don’t exist in most other jurisdictions. Nationally, about 20 percent of the producer workforce is saddled with standards that aren’t reciprocal with most other states. This web of licensing requirements makes expanding into new states a compliance nightmare and serves as a profound disincentive to innovation.
Were it the case that these rules added value for consumers in some way, perhaps their existence could be forgiven. But there’s scant evidence of that. Indeed, that’s why Congress acted in January 2015 to establish the National Association of Registered Agents and Brokers, or “NARAB.” NARAB’s purpose is to do away with redundant and ineffective requirements for agents and brokers licensed by other states.
So-called “nonresident” licenses simply function as jurisdictional hooks, a means by which a state’s insurance regulator may oversee a producer based elsewhere, but doing business in their state. While each state sets its own educational requirements and vetting standards for resident licenses, some also seek to impose onerous and duplicative rules that serve to discourage nonresident agents and brokers from attempting to do business in those states. NARAB would codify and streamline the process for licensed producers to do business in other states.
NARAB’s scope is limited. Current laws and regulations for resident licensure—as well as for appointing, supervising and disciplining licensees—would remain at the state level.
Nonetheless, its effect would be meaningful. Once implemented, NARAB will provide agents and brokers an option to register for a national nonresident license. This would make it much easier to create national brokerages well-situated to take advantage of the technologies that increasingly keep us all connected.
In effect, NARAB is a meaningful step toward deregulation. However, even though no one disputes the legislation enabling NARAB is good law, the association has yet to be created. Its operation is contingent on presidential appointments to fill out the 13 spots on the nascent organization’s board.
The federal official charged with making those recommendations is the director of the Federal Insurance Office, a part of the U.S. Treasury Department. Former FIO Director Michael McRaith—the only person to hold that job, to date—failed to fill the board during the Obama administration. As a result, NARAB has languished for two years since the law’s passage and the current burdensome system has persisted in a zombie-like state.
Unlike in the Affordable Care Act context, when it comes to nonresident producer licenses, getting rid of the lines around the states is fairly straightforward. All the new administration needs to do is appoint a new FIO director who will make filling out the NARAB board a priority. Campaign promises have rarely been so easy to keep.
Ian Adams is a senior fellow with the R Street Institute and R Street’s former Western region director.
The views expressed by contributors are their own and are not the views of The Hill.