Big Victory: President Obama Signs “NARAB II” into Law
March 17, 2015 by Pam Heinrich
Wide smiles and victory gestures have been shared throughout the insurance industry since one of the most significant legislative successes for independent producers was hailed earlier this year. The Terrorism Risk Insurance Act (TRIA) of 2015 – H.R. 26 – was signed into law by President Obama on January 12, 2015.
TRIA includes the National Association of Registered Agents and Brokers (NARAB) Reform Act of 2015, often referred to as “NARAB II.” This act creates NARAB as an independent, non-profit corporation, providing insurance agents and brokers who do business in multiple states a “one-stop” mechanism to satisfy the licensing and other requirements and conditions that exist in their non-resident states.
Essentially, membership in NARAB would become the equivalent to a non-resident insurance producer license. However, while NARAB would simplify the licensing process for multi-state producers, states would retain their jurisdiction over producer discipline and supervision, as well as the regulation of the marketplace in their respective state. NARAB will not be part of any federal agency, nor will it receive any federal funding.
THE HISTORY OF NARAB/NARAB II
NARAB was originally included in the Gramm-Leach-Bliley Act (GLBA), which Congress passed in 1999 (Public Law No. 106-102, also known as the Financial Services Modernization Act of 1999). A provision in GLBA promoted reforms to the insurance producer licensing process and authorized the creation of NARAB if states did not satisfy these reforms.
GLBA required at least 29 jurisdictions to achieve the GLBA-prescribed goals of producer licensing uniformity and reciprocity by November 2002. The passage of GLBA jump-started non-resident licensing reciprocity reform, and when it was deemed that enough states had, in fact, achieved GLBA-level reforms, NARAB was not created.
While much progress was made toward a nationwide, uniform licensing reciprocity standard, not all states implemented reciprocal licensing processes—including some of the larger states—which limited the ability of producers to get licensed in all of the states. Consequently, federal legislation (NARAB II) was introduced in 2008 – and, again, in subsequent Congresses – to implement NARAB as a national, uniform licensing clearinghouse. It was finally adopted by the 114th Congress in January 2015 and signed into law by the President as Public Law No. 114-1.
HOW NARAB WORKS
- A new, non-profit, member-based corporation known as the National Association of Registered Agents and Brokers (NARAB, or the Association) is established and will be governed by a 13-member Board of Directors appointed by the President, consisting of eight state insurance commissioners and five private sector representatives. The Directors will not be compensated for board membership.
- NARAB is not a government agency and is not funded with federal funds. However, the President has oversight over the association, including removal of the entire existing board.
- Membership in NARAB by insurance agents and producers is strictly voluntary; however, only NARAB members can take advantage of NARAB benefits. NARAB will not affect the rights of any non-member producer.
- To become a NARAB member, a producer must be licensed in his or her home state; have no active license suspensions or revocations in place at the time of application; pass a federal (FBI) criminal background check; and pay membership fees, which will be established by the NARAB Board of Directors.
- Once approved as a NARAB member, a producer may engage in the business of insurance in any non-resident state jurisdiction for any line of insurance held by the producer in his or her home state license.
- Through NARAB, producer members would continue to pay the appropriate licensing fees required by each state in which they operate. NARAB membership would be renewed on a biennial basis.
- NARAB will establish, as a condition of membership, continuing education requirements comparable to the CE requirements under the licensing laws of a majority of the states. However, NARAB itself is prohibited from offering continuing education courses for insurance producers.
- NARAB will coordinate with FINRA (Financial Industry Regulatory Authority) to create efficiencies in the administration of NARAB members who are subject to regulation by FINRA.
- The association is required, on an ongoing basis, to disclose to state insurance regulators and the NAIC a list of the states in which each NARAB member is authorized to operate. The association shall immediately notify the states (including state insurance regulators) and the NAIC when a member is newly authorized to operate in one or more states, or is no longer authorized to operate in one or more states on the basis of association membership.
- NARAB is granted some disciplinary enforcement powers; however, states will retain regulatory jurisdiction over consumer protection and market conduct, as well as state disciplinary authority.
- NARAB shall provide to the President, through the Department of the Treasury, and to the individual states (including state insurance regulators) an annual report of its activities, including an annual financial statement. It will be published on the association’s website.
IMPLEMENTATION OF NARAB
President Obama has 90 days from enactment of the law (or until April 13, 2015) to appoint the 13-member Board of Directors that will be made up of eight insurance commissioners and five industry leaders with professional expertise in producer licensing. One of the state insurance commissioners appointed to the Board shall serve as the board’s chairperson. Before making any appointments of the eight insurance commissioners, the NAIC will submit a list of non-binding recommendations to the President. Not more than four of the eight commissioners shall belong to the same political party. Of the other five non-commissioner members, three must have demonstrated expertise and experience with property and casualty insurance producer licensing, and the other two must have demonstrated expertise and experience with life or health insurance producer licensing. The board term is generally two years.
Once formed, the Board will need to raise initial capital to get the organization up and running, hire staff, and establish standards and procedures for admission (licensing) of member/producers. The board shall hold its first meeting no later than 45 days after the date on which all initial board members have been appointed.
And, while NARAB has been under consideration in some form for the past fifteen years, it is anticipated that it will still take one or two years to get the Association fully up and running. Many details of the implementation and application of NARAB are still to be determined, and NAFA will continue to monitor its progress.
