I heard Kentucky Insurance Commissioner Julie McPeak’s Forum 500 address at the American Council of Life Insurers’ annual meeting in Washington, D.C. this week. Commissioner McPeak also chairs the Life Insurance & Annuities Committee of the National Association of Insurance Commissioners, having inherited that responsibility from former North Dakota Insurance Commissioner Jim Poolman. According to Commissioner McPeak, the NAIC will be concentrating its regulatory focus in 2008 on the Interstate Insurance Product Regulation Compact, producer licensing reform, viatical settlements and travel underwriting.

Interstate Compact: McPeak expressed strong support for the Interstate Compact, which is up and running and offering a 30-day turn around time for some products. McPeak acknowledged that the Interstate Product Regulation Commission’s filing fees might be somewhat steep for smaller companies but felt that the value gained in the way of uniform product standards was worth the price. More states are expected to get with the program in 2008, but several big players (like New York) have steadfastly refused to come on board, and compact legislation failed outright in Alabama, Arkansas, Connecticut, New Mexico and Missouri.

Producer Licensing Reform: As for the ongoing efforts to move producer licensing from reciprocity to uniformity, McPeak revealed the life industry’s dissatisfaction with developments so far on the reciprocity side of this regulatory equation. The NAIC has therefore been taking a state-by-state look at resident and non-resident producers and making sure there are no desk drawer rules (or anything else that might run afoul of the Gramm-Leach-Bliley Act) standing in its way. This week a committee will begin reviewing the surveys that were sent to each state regulator, and zone-oriented results should be complete by the end of 2007. In McPeak’s view, if the NAIC can nail down reciprocity, then it can move forward to uniformity (and the ultimate goal of a true multi-state license) very quickly.

Viatical Settlements: McPeak was happy to report that the NAIC’s Viatical Settlements Model Act will retain its status as a uniform model law and that the controversial amendments to the model act that the NAIC adopted at its 2007 summer meeting remain in effect. McPeak admitted that completely appropriate life settlements and completely appropriate premium financing transactions do exist, but she was also compelled to say that the nature of life settlements in general runs afoul of her training with respect to insurable interest laws. McPeak has included the Viatical Settlements Model Act in her 2008 legislative package, but the effect that the ongoing governor’s race in Kentucky will have on her agenda is anyone’s guess.

McPeak also disclosed that policy loan programs and trust settlements are next on the NAIC’s agenda. This area of the life settlement industry is being addressed because of criticism that the current model laws left out trust transactions that reach the secondary market. This new, entirely different model will establish regulatory boundaries for transactions that complete with, but are different from, life settlements. There is some concern, however, that the laws in some 30 states—which prohibit loans against a policy that are greater than the policy’s cash surrender value—may stand in the way of what the NAIC is attempting to accomplish.

The Life Insurance Settlement Association issued a fact sheet in advance of the National Conference of Insurance Legislators’ Life Settlements Subcommittee meeting was taking place in Chicago yesterday that debunked the contents of the ACLI’s recently issued STOLI alert. It makes one wonder whether McPeak was only half joking when she wondered why the NAIC doesn’t have any better sense than to leave the entire issue of viatical settlements alone for the time being. 

Travel Underwriting: The biggest brewing regulatory controversy involves travel underwriting. McPeak spoke about the great divide over whether actuarial guidelines that indicate pricing (which border on trade secrets in the insurance underwriting world) should be filed for review and information purposes, or whether this data should remain in the confidential confines of a company’s home office unless or until requested in the course of a market conduct examination. Because some states want actuarial guidelines in hand before a policy is even written, the NAIC considered (and industry leaders rejected) a model law made up of two different options.

McPeak did not avoid the “what’s broken that we are trying to fix” question. Apparently the residents of some states (like Kentucky for instance) don’t engage in a whole lot of foreign travel. Regulators in these states take the position that language in the NAIC’s Unfair Practices Model Act is sufficient to address the concerns raised by travel underwriting. Other states (like Florida) have huge populations that travel to foreign countries. Regulators in these states believe that unfair claims practices language is insufficient to guard against discriminatory practices in the application process.

Although McPeak must function as a consensus builder at the NAIC, her position on the issue is clear—Kentucky won’t be keeping companies’ underwriting pricing guidelines on hand in its insurance department. And while she claims that the NAIC is committed to creating one product, she does not expect a unanimous vote on the second two-pronged model draft that the NAIC began working on in September.

Julie McPeak is committed to the life insurance industry’s ongoing regulatory modernization efforts. The NAIC and the State of Kentucky are fortunate to have her.