POINT
COPU O I NTTER
IS OPTIONAL FEDERAL CHARTER
THE WAY TO GO?
Congress has introduced a proposal to create an optional federal regulator for any life or property/casualty insurance company or agent who wants to be
regulated by the federal government instead of by the
states. The optional federal charter (OFC) proposal aims
to give insurers the choice to be regulated by one federal entity rather than by many state entities, to allow
agents to have one federal license instead of multiple
state licenses and to create a regulator who can give
the insurance industry a voice in the federal government when Congress considers the passage of laws
that could negatively impact the industry.
The OFC proposal will continue to be debated in the
House of Representatives and in the Senate this year.
While NAIFA is weighing its pros and cons, Advisor Today asked two members to share their thoughts on this
controversial topic. John A. Davidson, LUTCF, FSS, is NAIFA’s immediate past president and president of Davidson Insurance and Financial Services Inc. in Thousand
Oaks, Calif. William Hume, LUTCF, is an agent with State
Farm and is immediate past president of NAIFA-Illinois.
For more information, visit the advocacy section of
NAIFA’s website at www.naifa.org and look for Insurance
Regulatory Reform.
By Jill Edwards,
Director, Federal Relations, NAIFA
ADVISOR TODAY: DO YOU THINK AN OFC IS
GOOD FOR AGENTS?
JOHN A. DAVIDSON: At first blush, the concept of OFC
seems logical: speed to market of products, uniform licensing and the “option” to choose state or federal regulation.
But upon close and honest examination of the proposal,
you will see some very serious problems for agents.
First, if you like the compliance rules now, imagine two
different standards coexisting within one carrier, let alone
multiple carriers that most agents deal with. We cannot
hold “dual broker-dealer” registrations now, and the optional aspect of the OFC will be at the “carrier option,” not
the agent’s.
Also, a federal regulator appointed by the president
could mandate compliance (or commission disclosure)
with the stroke of a pen in all 50 states.
While uniform agent licensing is very appealing, the
prospect of unilateral control from the federal government
is not very comforting. The Congress’ NARAB II proposal
solves this problem without the risk of a federal regulator.
AdvisorToday.com
ADVISOR TODAY: DO YOU THINK AN OFC IS
GOOD FOR AGENTS?
WILLIAM HUME: Yes. Relationships are the basis of our
business. We spend years building them. We understand
our customers’ needs, and they trust our judgment and
advice. Yet, with a job or retirement relocation to another state, we lose a relationship that took years to develop.
Of course, we could go to the
trouble and cost of getting and
maintaining a license in a host
of states to service these customers, but the expense and complexity involved make that
proposition difficult at best.
The more practical alternative is an optional federal charter. In simple terms, an OFC would allow insurance producers
to operate in any state with a single federal license. For agents
who operate in multiple states, an OFC eliminates the extra
cost and compliance risk of multiple state licenses. In our increasingly mobile society, the need to operate across many ju-
risdictions is constantly on the increase. An OFC will allow
producers to maintain trusted relationships and serve their
customers regardless of geography.
William Hume,
LUTCF
For more informa-
tion on the OFC, be
sure to read “Your Guide to
the OFC, NARAB II and the Interstate Compact” at www.
AdvisorToday.com/200804/
OFCguide.html.
AT: HOW WILL AN OFC IMPACT CONSUMERS?
HUME: When there is competition in the marketplace, consumers win. An OFC will promote competition in the insurance marketplace and give consumers more choices. Insurers will be able to roll out new products and respond to competition quickly, and we would
be able to take care of our customers wherever they live. Our customers would not have to
