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F I S C A L I M P A C T R E P O R T

SPONSOR Leavell

DATE TYPED 1/26/05

HB

SHORT TITLE Insurance Product Regulation

SB 38

ANALYST Wilson

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

See Narrative

SOURCES OF INFORMATION

LFC Files

Responses Received From

Attorney General’s Office (AGO)

Public Regulation ICC (PRC)

SUMMARY

Synopsis of Bill

Senate Bill 38 permits New Mexico to become part of a group of compacting states that will

serve as a single point filing clearinghouse for the review of individual and group annuity, life

insurance, disability income and long-term care insurance product filings and advertisements un-

der a set of uniform standards. New Mexico would participate in an Interstate Compact Com-

mission (ICC) that will exercise rule making for reasonable uniform standards for products and

advertisements, as well as certain enforcement authority with the participating state.

The ICC is comprised of the chief insurance regulatory officer of each participating state. Ap-

proval of a uniform standard requires a two-thirds vote of the ICC. An insurer may opt to submit

a product for approval to either individual member states or to the ICC.

The ICC could establish uniform standards only after the ICC has been enacted by 26 states or

states representing forty percent of the total amount of premiums volume for the covered prod-

ucts. As of the date of this analysis, nine states have enacted legislation to join the ICC.

A state that has joined the ICC by enacting this legislation can reject a uniform standard adopted

by the ICC only by enacting legislation rejecting such standard, or by an administrative ruling

Senate Bill 38 -- Page 2

that the uniform standard fails to provide reasonable protections for consumers given the particu-

lar circumstances within the state.

Significant Issues

By enacting this legislation and joining the ICC, New Mexico would cede some of its sovereign

power to regulate insurance to the ICC, upon which it would have only one vote. However, New

Mexico can opt-out of specific uniform standards established by the ICC. A state may also

withdraw from the ICC at any time by enacting legislation repealing the statute that enacted the

ICC into law.

Proponents argue that this legislation would stave of the threat of federal preemption by offering

a state-based solution that provides uniformity, speed-to-market and single-point filing.

Opponents argue that it diminishes the local “hands-on” authority of the Superintendent to regu-

late the life, annuity, disability and long-term care markets in New Mexico.

The PRC argues the ICC proposed in this legislation is a state response to avoid federal preemp-

tion through a state-based solution that offers uniform standards, single point filing and speed-to-

market.

FISCAL IMPLICATIONS

The PRC states that participating in the ICC will have no fiscal impact. The ICC is financed by

filing fees paid by insurers with funding from the National Association of Insurance Commis-

sioners (NAIC). This bill will be revenue neutral. Existing statutory fees associated with forms

and rate filings in the New Mexico Insurance Code will be collected by the ICC and remitted to

the State of New Mexico.

ADMINISTRATIVE IMPLICATIONS

SB 38 would relieve the Superintendent of some day-to-day review and processing of form and

rate filing review, approval and fee collection to a certain extent. Companies will retain the

choice of filing products through the ICC or directly with the Insurance Division. Insurance

Division staff resources currently performing these functions may be reassigned and trained for

other areas within the Insurance Division.

The Superintendent would also be relieve of certain rule-making authority that would be as-

sumed by the ICC, although New Mexico could opt-out of a proposed uniform standard if it does

not provide reasonable protection for the citizens of New Mexico.

According to the PRC, the Insurance Division would designate one voting member to represent

New Mexico in the ICC. This individual will most likely be the Insurance Division’s Chief Life

& Health Actuary.

The Superintendent would continue to perform form & rate review and fee collections for prod-

ucts filed directly by insurance companies.

Senate Bill 38 -- Page 3

OTHER SUBSTANTIVE ISSUES

Over the past few years, Congress has explored legislative proposals to create an optional federal

charter for insurance companies or establish national regulatory standards for insurance compa-

nies and producers. These proposals have arisen out of the insurance industry’s arguments that

states cannot achieve uniformity or speed-to-market goals, hindering their ability to effectively

compete in the national and international arenas against other sectors of the financial services

industry.

The NAIC opposes federal legislation to establish mandatory national regulatory standards as

being unnecessary because the NAIC and the states have a specific plan to develop and imple-

ment national standards in all needed areas by 2008. Identified areas include consumer protec-

tion, market regulation, property & casualty rate regulation, insurance policy form approvals,

producer licensing, company licensing, financial condition examinations and approval of merg-

ers and acquisitions.

The NAIC also opposes the total regulation of interstate insurance by the federal government.

For over 130 years, state insurance departments have regulated the business of insurance. The

first insurance department was formed in New York at the request of insurance companies as a

result of serious fires that ravaged New York City leaving many insurers bankrupt and unable to

pay claims. Insurance companies, at that time, sought to restore public confidence and trust

through state regulation. Despite the opinions of modern-day critics, the insurance industry has

thrived under the state regulatory system.

The PRC believes that the most valuable feature or legacy of the 130 year-old state insurance

regulatory systems is local access. More specific, having an Insurance Department and an Insur-

ance Superintendent in Santa Fe ensures that each New Mexico consumer, each New Mexico

insurance company, each New Mexico bank or investment firm and each New Mexico insurance

producer can pick up the phone or drive to Santa Fe and meet face-to-face with the Superinten-

dent and his staff.

New Mexico companies, consumers and producers have a voice that the large national insurance

companies cannot avoid. This system allows the Superintendent to protect New Mexico con-

sumers and promote the healthy competitiveness of the New Mexico insurance market, in the

interests of New Mexico.

DW/yr