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Friday, June 28, 2013

Insurance Agent Licensing: Overview and Background on Federal “NARAB” Legislation

Baird Webel
Specialist in Financial Economics

The individual states have been the primary regulators of insurance in this country for the past 150 years. Congress specifically authorized the states’ role in the 1945 McCarran-Ferguson Act (15 U.S.C. §§1011-1015), and state primacy in insurance regulation has been recognized in more recent laws shaping the financial regulatory system, such as the 1999 Gramm-Leach-Bliley Act (GLBA; P.L. 106-102) and the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203). The system of multiple state regulators, however, has faced criticism over the years, with frequent focus on the efficiency of the system. One particular aspect of regulation that has been criticized by some as overly burdensome and inefficient is the licensure of insurance agents and brokers, known collectively as insurance “producers.” Every state requires specific licenses, sometimes with differing criteria, and insurance producers have identified the need to have multiple licenses as a significant expense for their operations.

Organizations such as the National Association of Insurance Commissioners (NAIC) and the National Conference of Insurance Legislators (NCOIL) create model laws and undertake other steps to harmonize insurance regulation and laws across the country, including the promulgation by the NAIC of models for insurance producer licensing. The individual states, however, are sovereign entities, and any models suggested by the NAIC or NCOIL must first be enacted by state legislatures. The state authorities may amend models or may completely reject suggestions from outside groups. Often this is done with the argument that laws and regulations need to be adapted to particular local circumstances or risks, such as hurricane risks along coastal areas.

Federal proposals addressing multiple state insurance producer licensing requirements through the creation of a National Association of Registered Agents and Brokers (NARAB) appeared as far back as the 102
nd Congress, and a version of NARAB was included in the Gramm-Leach- Bliley Act. These GLBA provisions, known generally as “NARAB I,” were conditional, and would not come into effect if a majority of states passed laws providing for uniformity or reciprocity in insurance producer licensing. Although a sufficient number of states met the GLBA requirements and thereby prevented the creation of NARAB, insurance producers continued to identify issues in the state licensing system. As a consequence, “NARAB II” legislation, mandating the creation of a NARAB organization, was introduced in every Congress since the 110th. It was passed by the House in the 110th Congress and the 111th Congress, but was not considered by the Senate.

In the 113
th Congress, the National Association of Registered Agents and Brokers Act of 2013 was introduced in both the Senate (S. 534) and the House (H.R. 1155/H.R. 1064). Under this legislation, membership in the NARAB organization to be created would permit insurance producers to operate in multiple states without obtaining specific licenses from these states. To become a NARAB member, an insurance producer would be required to have a license from at least one state, pass a criminal background check, and meet other requirements to be set by the association. The legislation would require that these additional requirements be not “less protective to the public” than the NAIC model law on insurance producer licensing. The association would be governed by a 13-member board made up of 8 current or former state insurance commissioners and 5 members from the insurance industry. The President would appoint the board, with advice and consent of the Senate, and retain the ability to remove the board and override the NARAB organization’s rules or actions. S. 534 was amended and ordered favorably reported by the Senate Committee on Banking, Housing, and Urban Affairs on June 6, 2013.

Date of Report: June 12, 2013
Number of Pages: 9
Order Number: R43095
Price: $19.95

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