IIPRC "Compact" Expansion to Include Associations

Josh Hammerquist, FSA & Muhammed Gulen , Esq.

Executive Summary

The Interstate Insurance Product Regulation Compact (Insurance Compact) recently expanded its scope to include Non-Employer Groups, reforming the regulation of group insurance products in the life, annuity, and disability income market. Previously, the Compact focused primarily on Employer Groups, leaving Non-Employer Groups to navigate the complex state-by-state approval process. The expansion aims to enhance market efficiency, increase accessibility to insurance options, and promote competition by streamlining the approval process for Non-Employer Groups offering life, annuity, or disability insurance. This significant development aligns with the Insurance Compact’s broader goal of promoting accessibility and efficiency in the insurance market.

The Operating Procedure for the Use of Compact-Approved Products for Other Than Employer Groups was adopted by the Commission on December 15, 2022, to facilitate the filing and review process for Non-Employer Group insurance products. The procedure clarifies the definitions of "Employer Group" and "Non-Employer Group" and establishes a prior authorization requirement for insurers intending to issue Compact-approved products to Non-Employer Groups. It also emphasizes collaboration with Compacting States and the provision of necessary certifications and statements of intent. The rules became effective on January 30, 2023.

Expanding the Compact to Non-Employer Groups presents insurers with significant growth opportunities. Insurers can increase their market share and gain a competitive advantage by tapping into previously untapped markets and diversifying their product offerings. The streamlined acceptance of new filings reduces administrative burdens, drives cost savings, and allows insurers to allocate resources to critical areas such as product development and market expansion. However, insurers must still navigate state-specific requirements and maintain flexibility to ensure compliance while benefiting from the streamlined process. Collaborative partnerships between insurers and Non-Employer Groups can further leverage the benefits of the expansion by co-creating tailored insurance solutions.

Expanding the Insurance Compact to Non-Employer Groups signifies a milestone for the insurance industry, offering growth opportunities, streamlined processes, and increased market efficiency. By strategically embracing this regulatory change, insurers can thrive in the evolving landscape of insurance regulation and better serve the diverse needs of Non-Employer Groups.

The Insurance Compact and Previous Applications

The Insurance Compact is a multi-state public body that streamlines the regulatory approval of asset-based insurance products. It comprises 44 states, the District of Columbia, and Puerto Rico, representing over 75% of the nationwide premium volume. The Compact was developed and implemented on a platform of mutual agreement between the states. While states retain sovereign authority, the Compact ensures uniformity and enables companies to bring products to market efficiently across participating states [1].

Until January 31, 2023, the Interstate Insurance Product Regulation Compact's uniform standards for group products were limited to Employer Groups. Non-Employer Groups, including associations, portability trusts, labor unions, and professional employment organizations, were required to undergo state-by-state approval and filing process for their group insurance products. The Compact focused primarily on Employer Groups, emphasizing group term life insurance, disability income insurance, and certain annuities [2]. Consequently, Non-Employer Groups face the challenge of seeking approval for their group insurance products state-by-state. This fragmented process increases administrative burdens and restricts the availability of insurance options for Non-Employer Groups.

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The Need for Expansion and Addressing Challenges in the Approval Process

The expansion to ?Non-Employer Groups will make group insurance products available to a broader range of organizations. This expansion fosters competition, allowing Non-Employer Groups to access a broader pool of insurers and potentially secure better coverage and pricing. Additionally, it promotes market efficiency by reducing administrative complexities and facilitating nationwide access to group insurance options.

The state-by-state approval process for Non-Employer Groups poses challenges regarding time, resources, and regulatory compliance. By incorporating Non-Employer Groups into the Compact, the approval process can be streamlined, ensuring faster market entry for insurers and increased accessibility to insurance products for Non-Employer Groups.

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New Regulation of the Insurance Compact

After lengthy negotiations with Compacting states and hearing the recommendations from the insurance industry, the Compact approved and adopted the Operating Procedure on December 15, 2022, following the guidelines outlined in the Rule for Adoption, Amendment, and Repeal of Rules for the Interstate Insurance Product Regulation Commission. The Operating Procedure became effective on January 30, 2023.

The Operating Procedure for the Use of Compact-Approved Products for Other Than Employer Groups, adopted by the Commission, establishes a straightforward process for filing and reviewing product filings intended for Non-Employer Groups. It emphasizes determining whether a group falls under the category of an Employer Group or Non-Employer Group is the exclusive authority of the state [1]. The Compact addressed insurers' concerns seeking a streamlined filing process while also considering the legitimacy of various Non-Employer Group types raised by certain states [2].

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Key Changes and Implications:

1. Clarification of Definitions: The Operating Procedure clarifies the definitions of "Employer Group" and "Non-Employer Group." An Employer Group refers to an employer or employer-established fund that insures employees and their dependents. Non-Employer Groups encompass other group types that meet specific criteria determined by each state [3].
2. Prior Authorization Requirement: To issue a Compact-approved product to a Non-Employer Group, insurers must obtain prior authorization from each state. This requirement ensures that Non-Employer Groups meet the legitimacy and authorization standards set by the Compacting States [3].
3. Certification and Statement of Intent: Insurers intending to issue policies or certificates to Non-Employer Groups must include a certification stating compliance with the Compacting State's filing laws and procedures. They must also provide a statement of intent specifying the Non-Employer Group(s) to which the policy or certificate will be issued, along with relevant information for each Compacting State involved [3].
4. Collaboration with Compacting States: The Commission notifies designated representatives of Compacting States before approving a product filing that includes a Non-Employer Group. Insurers must update their statement of intent within 90 days of the state's action, ensuring ongoing collaboration and compliance [3].

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New Era for Insurance Industry ?

Expanding the Compact to Non-Employer Groups allows insurers to include a more comprehensive range of customer segments without submitting state-specific form filings. Streamlining the acceptance of new filings will improve efficiency, drive operational cost savings, and allow insurers to allocate resources toward critical areas such as product development and market expansion. By providing coverage to these groups, insurers can increase their market share and gain a competitive advantage over those who have yet to adapt to the regulatory changes.

This will reduce administrative burdens and enable insurers to bring Compact-approved group products to market more efficiently. Standardized requirements and consistent regulations across Compacting States will provide insurers with more explicit guidelines, ensuring a more streamlined and predictable approval process. This consistency will also contribute to increased market efficiency and facilitate compliance with regulatory standards.

However, it is essential to note that even with this regulation, insurers must still navigate state-specific requirements and comply with varying state laws. Each state may have its unique regulations and criteria for approval of Non-Employer Groups. As a result, insurers must maintain flexibility and adaptability to ensure compliance while benefiting from the streamlined acceptance process. This may involve carefully navigating state-specific compliance requirements, maintaining strong relationships with state regulatory bodies, and staying updated on regulatory changes.

Collaborative partnerships between insurers, Non-Employer Groups, and other stakeholders can play a crucial role in leveraging the benefits of this regulation. Insurers can gain valuable insights into the specific needs and preferences of these customer segments, enabling them to develop tailored products and services. Furthermore, innovation becomes vital in this evolving landscape, as insurers must adapt their product offerings to meet the unique demands of Non-Employer Groups and stand out in a competitive market.

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Exception to General Rule: Associations Operating in Limited States

Even though the Compact offers streamlined processes and increased market efficiency, it may not always align seamlessly with certain associations' operational structure and limited jurisdiction. For associations with membership in limited states, particularly those that do not take extraterritorial jurisdiction, ?pursuing a Compact filing may not necessarily be the path of least resistance. While the expansion of the Compact to include Non-Employer Groups offers numerous benefits, it is crucial to consider the unique circumstances and challenges faced by associations operating in limited states.

Limited-state associations typically operate within a specific jurisdiction and may not be widespread across multiple states. As such, the specific requirements associated with pursuing a Compact filing may outweigh the benefits for these associations. Instead, insurers may opt to navigate the state-by-state approval and filing process, which aligns with their existing operational framework. It is essential for associations in limited states to carefully evaluate their options and consider factors such as membership distribution, market reach, and the level of regulatory complexity involved. Each association's decision should be based on membership distribution, regulatory complexity, and the ability to maintain compliance within a state-specific framework.

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Conclusion

Expanding the Interstate Insurance Product Regulation Compact to include Non-Employer Groups has significant implications for insurers. This expansion offers opportunities for growth, market diversification, and enhanced efficiency in the approval process. Insurers can extend their market reach by making group insurance products accessible to various organizations, allowing them to explore untapped market opportunities. Streamlining the acceptance of new filings simplifies regulatory processes, reduces administrative burdens, and drives operational cost savings. Insurers can allocate resources toward critical areas such as product development and market expansion. However, it is essential to note that insurers must navigate state-specific requirements and comply with varying state laws. Flexibility, adaptability, and strong relationships with state regulatory bodies are crucial for success.

References

[1] Uniform Product Standards and Approval, The Insurance Compact https://content.naic.org/sites/default/files/government-affairs-brief-about-insurance-compact.pdf

[2] Position Statement 1-2022, Interstate Insurance Product Regulation Commission https://www.insurancecompact.org/sites/default/files/2022-12/220412-ps-1-2022.pdf

[3] Operating Procedure for the Use of Compact-Approved Products for Other Than Employer Groups. Interstate Insurance Product Regulation Commission, December 15, 2022. https://www.insurancecompact.org/standards/record-adopted-standards/operating-procedure-use-compact-approved-products-other-employer