State-level regulation of US insurers results in significant
duplication, not the least being multi-state product licensing. A
solution, the Interstate Insurance Product Regulation Commission,
has been in place since 2006 and though results achieved have been
satisfactory they are not completely convincing.

 
Proponents of a Federal charter for US insurers have long cited the
need to register new products in each state individually as a major
failing of the current system. For national coverage, this can
require approval from 50 states, the District of Columbia and five
US territories.

To address this problem the National Association of Insurance
Commissioners established the Interstate Insurance Product
Regulation Compact (Interstate Compact) in July 2003 overseen by
the Interstate Insurance Product Regulation Commission (IPRC) which
acts as a central point of electronic filing and product approval
across all participating jurisdictions.

The IIPRC reached its minimum operational threshold of 26
jurisdictions in May 2006 and now has a membership of 36
jurisdictions comprising 35 states and Puerto Rico.

The Interstate Compact is aimed at enabling insurers to market
products more quickly on a national level and reduce the number of
product variations an insurer needs to meet state-specific
requirements. The regulation applies to individual and group
annuity, life insurance, disability income, and long-term care
insurance products.

IIPRC’s effectiveness

How effective the IIPRC has been was the subject of a study
undertaken by consultancy Milliman and published in October 2009.
The study was based on responses to a series of 17 questions
relating to the Interstate Compact from 61 companies, 21 of which
are registered to file submissions through the IIPRC.

product approval times

“Overall, the survey revealed a high level of satisfaction for
companies currently filing IIPRC submissions,” concluded author of
the report, Jeffrey Kulesus, a Milliman compliance consultant. His
conclusion came against the background of a majority of insurers
making use of the IIPRC expressing satisfaction with four key
elements:

• Speed of form submission, review and approvals;

• Greater ease in creating back-end approval documentation;

• Clear and user-friendly standards; and

• Accessibility of IIPRC staff.

In the extremely important area of speed-to-market, Milliman found
that nearly 62 percent of all IIPRC submissions are approved within
35 days of the submission date, and 76 percent are approved within
40 days.

Overall Milliman reported that 59 percent of IIPRC-registered
insurers, responded favourably regarding costs versus the perceived
benefit of IIPRC submissions.

“We believe the positive feedback in the survey reflects a growing
recognition in the industry about the inherent benefits of the
IIPRC,” said IIPRC chairwoman and Ohio Insurance Director Mary Jo
Hudson.

Far from perfection

Despite positive overall feedback from IIPRC-registered insurers
there is clearly room for enhancement of the Interstate Compact. In
particular, noted Kulesus: “The subject of cost appears to be a
significant issue for current insurance company IIPRC
participants.”

Specifically, 41 percent of IIPRC-registered insurers responded
somewhat unfavourably or unfavourably regarding IIPRC costs but
viewed the benefits as outweighing the costs.

The fee per IIPRC filing for approval across all compact member
states is $500 per product while for approval in five or less
compact member states the fee is $250 per product. The annual
registration fee for membership of the IIPRC is $5,000 per insurers
while for insurer groups containing more than five insurers the
annual fee is $1,000 per insurer for the sixth and each additional
insurer.

The attitude of insurers not registered with the IIPRC was also a
key focus of Milliman’s study which revealed that the main concern
for unregistered insurers is a perceived negative cost versus
benefit ratio. Other significant issues cited by non-registered
insurers were:

• Key standards not yet developed;

• Quicker approvals of more complex forms, or minor changes, are
available outside the IIPRC; and

• Standards are too restrictive, stifle innovation, and apply the
most stringent state requirements to most states.

Another primary concern on the list of perceived drawbacks to IIPRC
registration related to the IIPRC’s deadline associated with its so
called mix and match (M&M) process.

In short, the M&M process enables insurers to combine
IIPRC-approved asset-based product filing components with
state-approved product filing components, provided the filer
identifies these state forms in the IIPRC filing and certifies the
combination will not unreasonably affect the risk assumed.

IIPRC-registered insurers had been given two years to transition
all asset-based products to full IIPRC approval. Addressing
insurers’ concerns, the IIPRC eliminated this deadline in July
2009.

Rising IIPRC acceptance

Use of IIPRC submissions is gaining momentum with 144 filed in the
first eight months of 2009 compared with 106 during 2008 as a
whole. The IIPRC expects the total number of submissions in 2009 to
be about double that achieved in 2008.

The number of companies filing submissions to the IIPRC is also set
to increase with Milliman’s findings revealing that 16 (40 percent)
of respondents to its survey currently not registered with the
IIPRC intending to do so within 12 months. A further three (7.5
percent) anticipate being registered within 24 months.

However, a notable shortcoming of the Interstate Compact remains
the absence of 20 jurisdictions from its membership base. In
particular these include states that represent major components of
the US life insurance industry including California, Connecticut,
New York and Illinois.