Frequently Asked Questions
About the Interstate Insurance Product Regulation Commission

 

Generally, what is an interstate compact?

An interstate compact is a contract between states that allows states to cooperate on multi-state or national issues while retaining state control. Interstate compacts are specifically mentioned in the U.S. Constitution. Although historically used to address border disputes and water rights, the use of interstate compacts has expanded significantly in recent decades to cover tax issues, drivers' licensing and vehicle registration, environmental issues, emergency management and other issues. Over 200 interstate compacts currently exist, and on average every state belongs to at least 25 compacts.


What is the Interstate Insurance Product Regulation Compact (the "Compact")?

The Interstate Insurance Product Regulation Compact which to date has been adopted by 44 Member States representing approximately two-thirds of the premium volume nationwide, created the Interstate Insurance Product Regulation Commission (IIPRC) - a public entity treated as an instrumentality of the Compacting Member States." The IIPRC provides the States with a vehicle to (1) develop uniform national product standards that will afford a high level of protection to consumers of life insurance, annuities, disability income and long-term care insurance products; (2) establish a central point of filing for these insurance products; and (3) thoroughly review product filings and make regulatory decisions according to the uniform product standards.


When was the IIPRC created?

The IIPRC came into existence in March 2004 upon the legislative enactment of two states, Colorado and Utah, respectively. Although the IIPRC was created in March 2004, it did not become operational for purposes of adopting uniform standards until it met one of its threshold goals. Once twenty-six (26) Member States or, alternatively, Member States representing greater than forty percent (40%) of the premium volume were to join the IIPRC. In May 2006, the IIPRC reached both of these threshold goals for becoming operational.


How is the Compact governed?

The Compact is governed by the IIPRC, which includes one Member from each Compacting State. The Management Committee of 14 Members directs the activities of the IIPRC. The composition of the Management Committee under the Bylaws includes: (1) one member from each of the six largest states by premium volume, (2) four members from states with greater than 2% of premium volume, and (3) four members from states with less than 2% of premium representing each of the four geographic zones recognized by the NAIC. The IIPRC Officers elected from the Management Committee are Commissioner David Mattax, (TX), Chair; Commissioner Jacqueline K. Cunningham, (VA), Vice Chair; and Commissioner Angela Weyne, (PR), Treasurer.


How does the IIPRC operate?

The Compact is designed to facilitate transparency and accountability. The activities of the IIPRC are governed by the Bylaws and rulemaking procedures which have been developed through extensive consultations with the Member States, legislators as well as consumer and industry interested parties. The meetings are required to be open to the public, except in very limited situations which are detailed in the Bylaws and rules. As aforementioned, the uniform standard-setting process is conducted through comprehensive public notice and comment procedures which afford all interested parties the opportunity to provide input.


What type of insurance policies would the Compact cover?

The Compact has jurisdiction over four product lines: life insurance, annuities, disability income, and long-term care insurance. In an increasingly mobile society, these are products that have a long life and will travel with people as they move across state lines. As such, they are not as sensitive to local costs and conditions as are products such as automobile, homeowners and health insurance. Also, the chosen products have a common theme of accumulating wealth for people or helping to protect wealth that has been accumulated.


How are uniform standards developed?

States participating in the Compact will adopt uniform product standards through an extensive and transparent rulemaking process. When the Compact was first formed, the product standards were drafted by the NAIC Interstate Compact National Standards Working Group and forwarded upon their completion to the IIPRC’s Product Standards Committee. Now the Compact has initiated an Advance Rulemaking process for the development of uniform standards as the National Standards Working Group no longer drafts the uniform standards. During this Advance Rulemaking process comments are requested from all interested parties regarding the framework of the uniform standards. There are eight topics in which comments are sought – i.e. the definitions to be included in the uniform standards; the general requirements to include actuarial requirements, if applicable. The Product Standards Committee reviews the uniform standards through an open, transparent process that allows all who are interested to provide comment. The Management Committee, upon the recommendation of the Product Standards Committee, will expose the draft uniform standard for a 60—day public comment period, affording ample opportunity for those interested to comment on the uniform standards. Upon the conclusion of the 60—day public comment period, the Management Committee will conduct a Public Hearing, another opportunity for comments to be received. In order to be adopted, a uniform standard must receive approval by two-thirds of the Management Committee and two-thirds supermajority of the states participating in the Compact. A uniform standard would be effective 90 days after its promulgation or at a later date as determined by the IIPRC.


What guidelines for uniform standards are included in the Compact?

The Compact requires that the uniform standards be construed to prohibit the use of any inconsistent, misleading or ambiguous provisions in a product. It also requires that the form of the product made available to the public shall not be unfair, inequitable or against public policy as determined by the IIPRC.


How will the Compact raise product standards and consumer protection?

The standard-setting process in the Compact engages the collective expertise of the Member insurance departments as well as seeks the input of the greater state insurance regulatory community through the NAIC. Comments and concerns from legislative representatives, consumers and industry assist in informing our process to ensure high level standards. As the process is open to public participation, all interested parties are invited to comment as well.

Another important feature of the process is its voluntary nature. If product standards created by the IIPRC are not adequate, states will opt-out of the uniform standards, and the Compact will not work. Finally, the Compact requires supermajorities of both the Management Committee and the full membership of the Commission to adopt uniform standards.

These features promote a consensus-based approach to decision-making, which promises to produce higher product standards to benefit consumers, in exchange for an effective single point of filing with uniform standards that will provide insurers with the "speed to market" they want in order to compete more effectively.


May a state opt-out of uniform product standards once it joins the Compact?

Member States may opt-out of a uniform standard in two ways if it does not meet the needs of the state. First, it may enact legislation opting out of any uniform standard at any time for any reason. Second, it may opt-out by regulation following the promulgation of a uniform standard if it meets certain conditions


How do consumers participate in the Compact?

The Compact legislation directs the IIPRC to establish an advisory committee for consumer representatives. It directs a similar advisory committee for insurance industry representatives. The consumer advisory group provides feedback to the IIPRC on uniform standards, rules, and operating procedures. It serves as a formal mechanism for consumer representatives to monitor the operations of the Compact and to make recommendations.


Is participation with the Compact mandatory for insurance companies?

No. Companies will have the choice of filing products through the IIPRC or filing products directly with a state. If a company chooses the latter course, then the regulator will apply the existing product standard laws and procedures of the state. If a company files with the IIPRC, then the IIPRC uniform standards and review process will apply.


Who enforces decisions of the Compact?

The state insurance commissioner continues to oversee market regulation activities. However, the IIPRC monitors Member States for compliance with the bylaws, rules, uniform standards, and operating procedures of the IIPRC. The IIPRC provides assistance to state insurance departments in determining whether a violation of a uniform standard had occurred.


How will the Compact be funded?

The Compact will be financed by insurers who must pay the Annual IIPRC Registration Fee and IIPRC Filing Fees. The Compact authorizes the IIPRC to accept any and all appropriate donations and grants of money. In March 2006, the NAIC provided a contribution to the IIPRC in the amount of $500,000 to help cover its start-up activities. There will be no fiscal impact on states joining the compact as the IIPRC will collect and remit state filing fees.


What will the Commission use for its electronic rate & form filing system?

The IIPRC decided to utilize the System for Electronic Rate and Form Filing (SERFF) maintained by the NAIC for the benefit of state insurance regulators. State regulators and industry participants expressed a strong desire to use a single system for filing and review. SERFF contained the functionality most nearly mirroring IIPRC needs. SERFF is operable in all 51 jurisdictions and over 3,300 companies are licensed and filing with SERFF.


What is the NAIC's role in the Compact?

Shortly after the Compact model was adopted, the NAIC formed several working groups to begin the drafting process for uniform product standards, bylaws, rules and operating procedures. The NAIC realizes it will take the IIPRC a short period to become operational to the point it is generating its own revenues. It has pledged to support the IIPRC through this period. The NAIC also is a useful resource for states interested in getting the Compact legislation adopted.