An optional federal charter and a tax environment that favors annuities are in the cards through the next 10 years for the life insurance industry.
"With the population aging, you'll have more efforts from the regulatory standpoint for enhanced consumer protections," said Jeffrey J. Taggart, president of the National Association of Insurance and Financial Advisors in Falls Church, Va. "The boomers are reaching that retirement bubble, and they need protections."
Industry observers anticipate a slow progression toward an optional federal charter, which agents say will lead to quicker action when an industrywide problem occurs and will help expedite product approval and release.
"My observation is that the OFC may be too large of an endeavor, and the industry may be more successful in pursuing movement in that direction in smaller bites," said Steven B. Davis, a partner at Philadelphia-based Stradley Ronon Stevens & Young LLP. "There has to be some movement in that direction, but is it going to be piecemeal or one fell swoop?"
Federal regulation might be too cumbersome, though a gradual approach would permit legislators, regulators and the insurance industry to deal with each problem as they encounter it. For one thing, it would address one grievance at a time, observers say.
"I live in Pennsylvania, which is very slow in getting product approval implemented. They lag [behind other states] by six to eight months," said Adam Sherman, president and chief executive of Firstrust Financial Resources LLC of Philadelphia, which manages $650 million.
The delay is especially problematic for high-selling agents. "By then, there's already a second generation of a product approved in another state, and we can't even sell it yet," Mr. Sherman said.
The piecemeal approach is already in action and has included the creation of the Interstate Insurance Product Regulation Commission of Washington. Launched by state insurance regulators, the compact allows insurance companies to file products under a single set of standards, approving it for sale in all member states.
A proposal by Rep. Paul Kanjorski, D-Pa., for the creation of a federal office of insurance information is another step. It's a "good example of a movement that takes a smaller bite," Mr. Davis said.
The passage of the OFC would mean changes in the global marketplace. New rules would help make domestic markets more accessible to foreign companies because there would be a single point of regulatory filing for products coming into the United States, Mr. Taggart said.
"This is a global marketplace and there needs to be some cooperation to provide access to all the different markets," he observed. "The world my grandfather sold in [nearly a century ago] has changed."
Members of the industry are also keeping a protective eye on insurance products as they expect future administrations to search for sources of tax revenue.
"We have a tax code in its most unstable position ever since the income tax was enacted," said Marc Cadin, vice president of legislative affairs at the Association for Advanced Life Underwriting of Falls Church, Va. "For almost a century, Congress has made the consistent judgment not to tax inside buildup [of cash values]." The group says it remains confident that cash values inside of life insurance will continue to grow tax free, but remains on guard.
"There's little question that it's good public policy to have the inside buildup on a life insurance policy grow tax free," he said. "Congress will reach that conclusion as well."
E-mail Darla Mercado at [email protected].
