State Of Ohio DEPARTMENT OF INSURANCE 2100 Stella Court, Columbus, Ohio 43215 (614) 644-2658        www.ohioinsurance.gov	Bob Taft, Governor J. Lee Covington II, Director

Testimony of
Lee Covington, Director
The Ohio Department of Insurance
Before
The Ohio House Insurance Committee
On
S.B. 129 (Nein), the Agent Licensing Model Act
February 12, 2002

Mr. Chairman and members of the committee:

It is with great pleasure that I appear today to ask for your support of Substitute Senate Bill 129, the Agent Licensing Model Act. Passage of this legislation will accomplish several goals -- none more important than compliance with the federal Gramm Leach Bliley Act, the Financial Services Modernization Act of 1999. In addition, this legislation is a crucial component of the plan I have put in place to improve services to one of our most important customers -- licensed insurance agents and prospective new insurance agents in Ohio.

The Gramm Leach Bliley Act, enacted in November 1999, is the one piece of legislation that has had the most dramatic and significant impact on insurance regulation since the McCarren-Ferguson Act reserved the regulation of insurance to the states. Although this legislation preserved the functional regulation of insurance to the states, GLBA put states on notice that Congress would take an active interest in insurance regulation and demand that certain milestones be reached in order for Congress to preserve the traditional right of states to regulate insurance. For example, GLBA requires at least 29 states to adopt full reciprocity or uniformity for non-residents insurance agents to avoid the creation of a quasi-federal organization entitled NARAB -- the National Association of Registered Brokers and Agents by November 2002. At last count, 39 states have passed the necessary legislation -- exceeding the requirement specified in GLBA. Although you might think this would be a positive sign for members of Congress, this has not been the case.

During a hearing before the House Financial Services Committee last Spring, Rep. Sue Kelly of New York, a key sponsor of the original NARAB provision in GLBA, said that states' efforts to enact reciprocal and/or uniform agent licensing laws would fall short without full state participation and uniformity. Specifically, Rep. Kelly said that "Congress must not let the states stop at 29 -- it must push further. We must realize the goal of uniformity for 50 states." Ohio's own Congressman Mike Oxley, Chairman of the House Financial Services Committee, has stated that insurance regulation must be reformed or face possible federal intervention. Congressman Oxley specifically stated that " It is my hope that our state legislators and insurance commissioners can enact such reform. If not, Congress will return to this issue with our own solution."

I am here today to report that by passing Senate Bill 129, with reciprocity measures and establishing the foundation for uniformity in agent licensing, Ohio will demonstrate that state insurance regulation can work. Enactment of Senate Bill 129 ensures that Ohio will be reciprocal for non-resident agents, creates the foundation for uniformity in processing of agent licenses, and more importantly, tells the U.S. Congress that Ohio will meet the requirements of GLBA.

Along with meeting the requirements of GLBA, this bill is an essential part of my program to improve department services to agents. When Governor Taft appointed me in 1999, I asked our staff to assess the current agent licensing system and determine what improvements were necessary. This evaluation concluded that our current system of licensing agents sometimes, took four to six months and was very paper and time intensive. My first priority was to address this situation and I am pleased to share with you the steps we have taken to provide the highest level of service to insurance agents:

• Agent Licensing: Agents can now be licensed in just 5 business days using the Department's Producer Information Network (PIN). Agents can:
  • Apply online;
  • Complete fingerprinting and background checks through an electronic system that produces results in 24 hours;
  • Schedule exams online;
  • Take a "sample" exam on-line to get comfortable with the format;
  • Take the test using state-of-the-art computer testing facilities;
  • Obtain the test results and license (if successful), immediately upon completing the exam; and
  • Complete the appointment process via the Internet on a same day basis.

Nearly 75% of our 250,000 new agent appointments are processed on line, which is up from 50 percent in 2000.

• Agent Certificate of Licensure: The Department developed a new certificate of licensure for those individuals who are licensed in Ohio that reflects the accomplishment and professionalism of our agents. (see enclosure)
• Multi-State Licensing: We have developed procedures to make processing of multi-state agent licenses more efficient. Ohio was one of the first states to use the Producer Database (PDB) to verify home state licensing rather than requiring a paper home state certification from a non-resident application. Ohio was one of two original pilot states for the National Insurance Producer Registry (NIPR) which can accept and process multi-state applications and allows Ohio agents to be licensed in participating states with the touch of a button.
• Continuing Education: I know that this issue is very important to Ohio agents and I would like to thank Representative Lynn Olman for his work on this issue. Adding to our online CE reports, this year the Department was one of the first states to successfully unveiled a new type of online, interactive CE course for licensed agents available 24 hours a day, 7 days a week. This is our first step in making sure that Ohio's CE program is not only quality-driven but easy and accessible for our agents. I commit to you to continue to identify inefficiencies in the current system, make changes where prudent, and strive for a top-notch CE program for our agents.

I also pledge to improve communications with our agent population. In 2001, we began a practice of providing each licensed insurance agent, two new mailings a year, our "Agent Update", (see attached), which features news and a CE transcript. In addition, this information will be on-line at our website at www.ohioinsurance.gov, which has over 11,000 visitors each week. I encourage you to visit our homepage where our most popular feature is our "Agent Locator" which allows agents, companies and consumers to check the status of appointments and licenses at anytime.

Senate Bill 129 will move Ohio to the next step in improving services to licensed agents. The bill, which has been worked on by a diligent and hardworking group of stakeholders for approximately 18 months, incorporates the NAIC Producer Licensing Model and the NAIC Safe Harbors model. Specifically, this legislation will ensure that Ohio is reciprocal with other states for the licensing of non-resident agents but also standardizes provisions for agent licensing and get us very close to uniformity with the other states that have adopted this model. Specifically, this bill will:

1. Require reciprocity for any line of insurance issued by another state;
2. Expressly exempt non-residents from pre-licensing education and the exam if licensed in their home state;
3. Specifies the non-resident licensing procedures and applications that will be used by all states.
4. Eliminates a bureaucratic requirement that all business entities as defined in the bill submit articles of incorporation or proof of good standing with the Secretary of State;
5. Recognizes and accepts non-residents' compliance with their home state's CE requirements;
6. Firmly lays the foundation for uniformity with other states by standardizing definitions and lines of authority.

Senate Bill 129 strikes a balance between model act language and preserving statutory language that is important to Ohio agents and consumers. For example, this bill:

1. Maintains exemption from licensing for customer service representatives. These individuals are an important part of the insurance transaction but are not soliciting, selling, or negotiating the sale of insurance;
2. Maintains Ohio's current requirements for pre-licensing and continuing education;
3. Maintains current protective standards for licensing agents that include background checks.

Senate Bill 129 also includes language based on another NAIC model that allows the Ohio Department of Insurance to monitor the sale of insurance products by "persons" that lend money or extend credit. Many of these persons include banks; savings and loans, credit unions, and consumer finance organizations. With the passage of GLBA and the elimination of barriers between banks and insurance companies, banks and other organizations will proactively pursue customers who want to purchase insurance products. Prior to GLBA, the purchase of these products was most often conducted through independent or captive insurance agents. The statutory regulations included in SB 129 are focused on ensuring the consumer is fully educated as to the choices they may have when purchasing insurance from these individuals. For example, these provisions address:

• Sales practices - Senate Bill 129 prohibits anti-tying and anti-coercion that would lead customers to believe an extension of credit is conditioned on the purchase of an insurance product from that institution or a promise not to buy such a product from an unaffiliated entity.
• Disclosures and advertising - Senate Bill 129 requires disclosures that the extension of credit is not conditioned on the purchase of a specific product and that any such insurance product is not insured by the bank or any government institution or program.

Finally, I would like to give credit to the numerous stakeholders who participated and provided comments to the Department throughout our 18-month process. I have attached a list of those individuals for your review. In addition, I would like to give special recognition to Chairman Stapleton, Senator Nein and their staff for encouraging and supporting this process so that we can join the ranks of those states that have passed this important legislation and provide the highest level of service to Ohio insurance agents and prospective agents.

This concludes my testimony and I would be happy to try to answer any questions.