Following passage of the act, NAIC and state  regulators worked to develop the PLMA and various NAIC and state  licensing standards. Though some state insurance regulators have sought  authority to conduct full background checks using fingerprinting, NAIC  officials noted that only 17 states as of March 2009 were performing full  nationwide criminal history checks using fingerprinting as part of their  licensing programs. Officials from some of the states in our sample also noted that many states  are unwilling to reciprocate with other states that do not conduct such  checks and expressed concern that doing so would diminish their  consumer protections. A Lack of Full Reciprocity and Uniformity in Producer Licensing Could Lead to Uneven Consumer Protection and Some Inefficiency

According to some industry participants in our sample, while reciprocity  and uniformity of producer licensing across states have grown, the  differences in background checks, licensing requirements, and insurance  line definitions across states prevent them from achieving full reciprocity  and uniformity, and may impact regulators and consumers. These inefficiencies could result  in higher costs for insurers, which in turn could be passed on to  consumers. Product Approval Has Become More Efficient, but Barriers Exist to Greater Reciprocity and Uniformity

According to NAIC officials, NAIC and state regulators have taken steps to  make product approval more efficient, but barriers to greater reciprocity  and uniformity exist in the areas of product review and states’ approval  processes. As of March 2009, SERFF was used by 52 states  and jurisdictions. In addition, some industry participants noted  that states that have not joined the Compact may feel their current product  approval and consumer protection processes are superior to the  Compact’s processes. As a result, consumer groups suggested that they  and others do not have an opportunity to review filings and help ensure  that harmful products do not get approved for market. Full Reciprocity Is Unlikely for Approvals in Property/Casualty Insurance Lines

According to some industry participants, while the Compact has increased  reciprocity of approvals for some life, annuity, and long-term care  insurance products, similar reciprocity is unlikely for property/casualty  insurance products. In  addition, some industry participants noted that lack of uniformity and  reciprocity in product approval processes may lead to higher costs for  insurers and, in turn, consumers. NAIC Has Initiated a Number of Efforts to Improve Market Conduct Regulation, but Implementation among States Has Varied

NAIC has taken several steps to improve market conduct regulation that  include updating examination guidance and developing new data  collection and analysis tools to promote uniformity. NAIC has also sought to  improve coordination of enforcement actions across states. Specifically, the program outlines six  market conduct accreditation categories, based on the 99 core  competency standards:    data collection and reporting, including use by states of key NAIC  databases such as the Regulatory Information Retrieval System (RIRS),  Complaints Database, Market Analysis Review System (MARS), Market  Conduct Examination Tracking System, Special Activities Database (SAD),  and Market Initiative Tracking System (MITS);    market analysis, which includes having appropriate regulatory staff with  specific responsibility for data analysis and developing a baseline  understanding of insurance markets and issues;    market conduct examinations, including having procedural guidelines and  standards in place to determine when examinations should be called, and  which adhere to the Scheduling, Coordinating, and Communicating  chapter of the Market Regulation Handbook;  interstate collaboration, including contacts designated by commissioners  of insurance for the purpose of interstate communication and  collaborative actions;    oversight of contractors hired by insurance departments that have the  expertise and professional qualifications to perform market conduct and  analysis and examinations; and  treatment of confidential information, meaning that insurance  departments should have the authority to analyze, examine, or investigate  entities involved with the business of insurance, as well as protect  consumers, enforce a continuum of regulatory responses when needed,  and keep records and insurance information confidential. In addition,  some industry participants in our sample noted that it was difficult to  achieve greater market conduct uniformity when not all states participate  in standardized improvement efforts like the MCAS. Limited Reciprocity and Uniformity Can Create Inefficiencies and Uneven Consumer Protection across States

Limited uniformity in the use of NAIC’s market conduct tools and in state  laws and resources—and the resulting limits on reciprocity among  states—may create inefficiencies for insurers and regulators and lead to  uneven levels of consumer protection across states. To address these questions, in each of the regulatory areas of  producer licensing, product approval, and market conduct regulation, we  have been asked to assess (1) the progress NAIC and state regulators have  made to increase reciprocity and uniformity, (2) the factors that have  challenged efforts to achieve greater reciprocity and uniformity, and (3)  the potential effects on the insurance industry and consumers if greater  progress is not made.
Why GAO Did This Study

Because the insurance market is a vital part of the U.S. economy, Congress and others are concerned about limitations to reciprocity and uniformity, regulatory inefficiency, higher insurance costs, and uneven consumer protection. GAO was asked to review the areas of (1) producer licensing, (2) product approval, and (3) market conduct regulation in terms of progress by NAIC and state regulators to increase reciprocity and uniformity, the factors affecting this progress, and the potential impacts if greater progress is not made. GAO analyzed federal laws and regulatory documents, assessed NAIC efforts, and interviewed industry officials.

What GAO Found

Reciprocity of producer licensing among states has improved, but consumer protection and other issues present challenges to uniformity and full reciprocity. Congress' passage of the Gramm-Leach-Bliley Act (GLBA) in 1999, NAIC's Producer Licensing Model Act (PLMA) of 2000, and uniform licensing standards (2002) have helped improve reciprocity and uniformity. However, NAIC officials noted that as of March 2009, only 17 states were performing full criminal history checks using fingerprinting, and some states that do such checks have been unwilling to reciprocate with states that do not. In addition, some insurance regulators in our sample noted that regulators do not have a systematic way to access disciplinary records of other financial regulators. Without full checks on applicants, states may less effectively protect consumers. Licensing standards, including how state regulators define lines of insurance, also vary across states, further hindering efforts to create reciprocity in agent licensing. These differences may result in inefficiencies that raise costs for insurers and consumers. State regulators' processes to approve insurance products have become more efficient, but barriers exist to greater reciprocity and uniformity. NAIC and state regulators have improved product approval filings by creating the System for Electronic Rate and Form Filing (SERFF) in 1998, which, according to some industry participants, has simplified filings and reduced filing errors. However, SERFF does not address differences in regulators' review and approval processes. In addition, an Interstate Compact was created in 2006 to facilitate approval of certain life, annuity, disability income, and long-term care products, which are accepted across participating states. As of March 2009, 34 states participated in the Compact. However, the Compact leaves some decisions on approval up to the individual states, and several key states have not joined because they feel their processes and protections are superior to the Compact's. Moreover, differences in state laws are likely to limit reciprocity in the approval of property/casualty insurance products. To the extent these areas lack reciprocity and uniformity, some industry participants noted that there may be inefficiencies that slow the introduction of new products and raise costs for insurers and consumers. NAIC and the states have taken steps to improve reciprocity and uniformity of market conduct regulation, but variation across states has limited progress. For example, NAIC noted that in 2006 it developed uniform guidance, and in 2008 created core competency standards, which are intended to be part of an accreditation process for market conduct regulation. NAIC noted that the accreditation plan has not been finalized, and the standards do not include adherence to all NAIC market conduct guidance. In addition, NAIC in 2002 developed the Market Conduct Annual Statement (MCAS) to promote uniform data collection and better target exams. However, industry participants have several concerns about the MCAS and NAIC noted that fewer than half of insurance regulators use it for data collection. NAIC has also created a working group to coordinate enforcement actions. While better communication and coordination appears to have resulted, according to some states in our sample, the effect on uniformity of market conduct regulation is uncertain. Lack of uniformity and reciprocity may lead to inefficiencies, higher insurance costs, and uneven consumer protection across states.