State Modernization and Regulatory Transparency Act (Summary by Section)

April 6, 2005


This title enhances insurance consumer protection and promotes efficiency by ensuring that the States develop and coordinate uniform market conduct oversight of insurers that is consistent, reliable, transparent, and focuses resources on patterns of abuses. To achieve improved market conduct oversight within three years, States will be required to develop and implement:

  • A coordinated system for implementing market conduct examinations of multi-State insurers on a regular basis
  • Uniform procedures for “for cause” market conduct examinations
  • Transparent and published standards for all State market conduct rules or regulations
  • Uniform adoption and implementation of market conduct laws, procedures, and practices, so that States can rely on each other’s oversight
  • Inclusion of market conduct in the NAIC’s State accreditation process
  • Coordination of market conduct analysis and examination information requests, including full utilization of NAIC’s market analysis databases
  • Development, adoption, and implementation of updates and improvements to the models and coordinated uniform standards governing market conduct

This title requires the States to develop and coordinate a single point-of-entry for insurance company licensing based on adequate standards and using uniform electronic application filing systems based on NAIC’s Uniform Certificate of Authority and ALERT standards. Specifically, the States will be required to achieve:

  • Streamlining of company licensing that allows an insurer that is licensed in good standing in a model State to submit a uniform application and Uniform Certificate of Authority to all other States electronically to receive a license in those States
  • Streamlining of requirements for license filing, name change, or changes in business lines, based on ALERT standards, for States other than an insurer’s home State
  • Streamlining of consideration of multi-State mergers and acquisitions, including development of memorandums of understanding based upon the NAIC’s lead-state framework to defer most actions to the designated lead States

This title streamlines agent and broker licensing by promoting efficiency, uniformity and fairness. Building on the success of NARAB, the States are required to implement reciprocal licensing for agents and brokers within two years. The title also requires the States, within three years, to achieve:
  • Streamlined licensing standards and increased uniformity for agents and brokers
  • Elimination of discriminatory requirements and excessive continuing education burdens imposed against nonresident agents and brokers
  • Full implementation and utilization of the NAIC’s National Producer Licensing Database for coordinated licensing of agents and brokers
  • Adoption of coordinated electronic filing for agent and broker license applications for both new licenses and renewals
  • Uniform insurer appointment standards and procedures, including procedures to receive required reports from insurers of the insurers’ appointed agents and brokers, including reports of “for cause” terminations

This title encourages the States to enter into an interstate compact authorized under this title to establish, coordinate, and maintain a Uniform Multistate Filing System within three years that:

  • Includes a single point of filing, review, and approval for life insurance policy forms, as well as updated uniform laws and regulations governing the filing, content, and regulation of policy forms for life insurance
  • Creates a more efficient and effective product review to bring products to consumers more quickly
  • Provides for publication of interpretations of the new laws and regulations and a process to quickly resolve conflicting interpretations among the States
  • Ensures full participation in the interstate compact with enforced deadlines and without deviations
  • Establishes uniform national standards that reflect the current product approval standards in the States
  • Provides a streamlined forms review process for sophisticated purchasers, the definition of which should be adopted nationwide

This title streamlines business access to commercial insurance by promoting efficiency and recognizing exempt commercial policyholders. Specifically, within three years the States will achieve:
  • Full implementation of SERFF with coordinated checklists for full compliance to establish a coordinated electronic system for nationwide single point filing of property and casualty policy forms
  • Updated standards for product filing for applicable commercial property and casualty insurance, including either the appropriate NAIC model law or laws or regulations that provide for A) competitive rating for commercial insurance with expedited rate filings; B) expedited review of policy forms, within a 30 day review period for self-certified filings; C) recognition of single-state governance of policy form requirements, based on the primary location of the policy risk and the consumer’s principal place of business; and D) recognition of qualified exempt commercial policyholders whose insurance is not subject to rate and form review
  • Common filing nomenclature to reduce unnecessary form filing deviations and coordinate filing reviews
  • Greater transparency in rates and forms regulation through elimination of unpublished desk drawer rules

This title modernizes and streamlines the review of personal lines insurance forms with resulting consumer benefit. Specifically, within three years the States will achieve:
  • Full implementation of SERFF with coordinated checklists for compliance to establish a nationwide electronic system for single point filing of property and casualty policy forms
  • Common filing nomenclature to reduce unnecessary form filing deviations and coordinate filing reviews
  • Elimination of unpublished desk drawer rules
  • Expedited review of property and casualty policy forms, particularly for filings that are the same or substantially the same as existing insurance filings

This title encourages the States to develop and coordinate a uniform system for the regulation of surplus lines insurance under which a single set of regulatory obligations will apply to each individual transaction. The Congress specifically intends that any tax obligations related to surplus lines or directly procured insurance transactions should:
  • Be required to be paid only to the home State of the insured
  • Be allocated among the States in accordance with an allocation formula and procedure that the States should develop and implement
  • Be processed through a uniform and centralized national electronic system for the payment and allocation of taxes related to surplus lines and directly procured insurance that the States should develop and implement

The Congress further intends that the regulation of surplus lines should be streamlined and modernized in the following respects:

  • All States should participate in the NAIC’s national insurance producer database for the licensure of surplus lines brokers and the renewal of such licenses
  • The States should develop and adopt a uniform set of eligibility criteria for non-admitted insurers
  • The States’ regulation of surplus lines transactions with respect to sophisticated commercial purchasers should be streamlined

This title requires the States, within three years, to develop and implement updated laws and regulations to promote uniformity in the reinsurance marketplace. These updated laws and regulations will:
  • Create a more efficient and effective system for filing of financial statements by reinsurers
  • Ensure State recognition of uniform reinsurer financial statements
  • Ensure State recognition of uniform solvency regulation with deference to the insurance regulator of the home State of a reinsurer

This title streamlines the antifraud coordination efforts of State and Federal regulators, reduces inefficiencies of financial services regulation, assists financial regulators in detecting patterns of fraud, and modernizes the fight against fraud in all of its evolving manifestations and permutations. To these ends, this title stipulates that:
  • The financial regulators shall establish a coordinated network of their computer systems to share appropriate anti-fraud information
  • An Antifraud Subcommittee be created to establish the coordinated network if the regulators do not do it on their own within the specified time period
  • An agency supervisory privilege be created to allow State and Federal financial regulators to share regulatory information while retaining ultimate control over dissemination of the shared information
  • Agencies be able to maintain any existing confidentiality protections on shared information
  • Agencies not be subject to liability for the sharing of information among regulators if acting within the scope of their office and in good faith
  • The financial regulators will have access to certain criminal background information on financial professionals
  • The financial regulators will coordinate the anti-fraud network with their foreign counterparts to combat terrorism
  • Certain conforming and updating changes be made to the Investment Advisors Act of 1940 and the Securities Act of 1933

This title improves consumer protection laws governing the sale of viaticals and clarifies the division of viatical regulation among the various State and Federal regulators. To this end, within three years:
  • The States shall implement the NAIC’s 2001 Viatical Settlements Model Act or laws or regulations that address the same critical consumer protection issues
  • If a State does not adopt appropriate viatical consumer protection provisions, that the NAIC model act shall apply in that State to govern viatical settlements
  • The Securities and Exchange Commission and the North American Securities Administrators Association shall jointly study and report to the Congress on the most effective and efficient manner of preventing viaticals fraud with respect to creating more uniform treatment under State and Federal securities laws
  • The States shall facilitate a more efficient regulatory system governing viatical settlements by implementing uniform or reciprocal laws governing licensure of producers authorized to solicit and sell viaticals

This title addresses miscellaneous insurance lines. Specifically:
  • The States are intended to develop and implement uniform standards for internal and external reviews of appropriate insurance plans within three years
  • The States shall develop and implement an interstate compact for single point of filing and coordinated review of lines of insurance other than those addressed in titles V through VII, and this title provides advance consent for that compact
  • The State insurance regulators, the NAIC, appropriate Federal entities, and law enforcement agencies are encouraged to establish a task force focused on addressing insurance scams

This title encourages the States to develop and coordinate uniform laws regarding receivership of insurers. Specifically, within three years, the States will have developed laws designed to:
  • Protect the interests of insureds, claimants, creditors, and the public
  • Create uniformity among State insurance receivership laws in the United States while maintaining the administration of receiverships within each State system
  • Create efficiency in the administration of insurer receiverships
  • Establish a system that equitably apportions any unavoidable loss

This title encourages the States to implement best practices rules for financial surveillance to enhance insurance solvency regulations. Specifically, the States will be required to:
  • Implement a coordinated and substantially uniform procedure for holding periodic meetings, as appropriate, between the appropriate insurance regulatory officials of an insurer’s home State and the executive management of an insurer for the purposes of reviewing business strategies, financial results, capital adequacy, and other critical financial solvency issues
  • Review corporate management policies among insurers and develop model uniform standards for promoting best practices standards
  • Implement a coordinated and substantially uniform procedure for encouraging insurer self-audits that would be kept confidential under State law
  • Adopt and implement in a uniform manner the Model Act on Administrative Supervision
  • Adopt and implement the NAIC accounting practices and procedures manual or its equivalent, with respect to the accounting required of operating insurers
  • Use and require standard accounting practices except in certain extraordinary circumstances to maintain the financial solvency of an insurer
  • Implement uniform financial surveillance practices regarding affiliated insurers, such as coordination of on-site supervision, standardization of information exchange, and full implementation of the NAIC lead-State surveillance framework

This title will create a coordinated State-National partnership to promote uniformity and efficiency in government policies that affect the insurance marketplace. The Partnership will be balanced between State and National entities, without any regulatory power or supervisory authority. The Partnership’s duties are identifying whether certain uniformity requirements under this Act have been met, helping to resolve actual conflicts over government insurance policies and this Act, and facilitating coordination of financial and international trade issues that affect insurance. Specifically, the Partnership:
  • Will be an independent establishment composed of 7 members, including an insurance commissioner from each of a small, medium, and large State, as well as a designees from the Securities and Exchange Commission, the Department of the Treasury, and the Board of Governors of the Federal Reserve System, and a 7th member nominated by the State insurance commissioners and appointed by the President to act as Chair and break tie votes, with equal balance as to political party membership and rotating meetings. The Partnership will have two separate liaisons to coordinate international insurance representation of the United States and analyze the effects of national financial policy on the insurance marketplace
  • Will have no regulatory authority, but will promote uniformity, assess compliance with this Act, mediate and resolve conflicts among government agencies, and conduct appropriate arbitrations of inter-agency conflicts
  • Will not have a permanent office and will be allowed only one liaison per member and minimal clerical staff to ensure the Partnership remains only a coordinating entity
  • Will review petitions regarding actual conflicts over uniformity requirement or insurance regulation and where appropriate, offer non-binding arbitration, issue interpretations, or participate in expedited court proceedings
  • May seek expedited court consideration of conflicts it has reviewed with at least equal weight given to its interpretations

This title creates nationwide competitive insurance pricing. After the expiration of a two year period, no state may require the approval or prior review of any rate charged for an insurance policy by an insurer.
  • A flex-band phase will be incorporated for covered lines to phase in competitive rating. The flex band will be based upon the increase or decrease in the aggregate rate for all such coverages. It will not apply on an individual insured basis, and only one rate filing may be made by an insurer during any 12 month time period. The flex band will 7 percent during the first 12 month period, and 12 percent during the second 12 month period
  • Credit insurance, title insurance, mortgage insurance, gap insurance, medical malpractice insurance will be excluded from the covered lines of insurance
  • Nothing in this section preempts States from requiring the informational filing of rates
  • Nothing in this section preempts States from establishing or recognizing rating or advisory organizations
  • Nothing in this section preempts State statutes, rules, regulations or orders that prohibits the use of race, color, religion, creed, ethnicity, or national origin as an underwriting or rating factor or classification

This title discusses the fact that the “McCarran-Ferguson Act” of 1945, as amended by this Act, remains the law of the United States.

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North American Title Insurance Company (NATIC) is a seasoned title insurance underwriter, helping title agents to achieve their individual business goals for more than 50 years. Today, the company conducts real estate settlement services in 39 states and the District of Columbia through a network of experienced, independent agents.