Gathering support: The American Council of Life Insurers is working with the National Association of Insurance Commissioners to modernize regulation by allowing insurance companies the choice of federal or state oversight.
Gasper joined Nationwide in 1966 as a group underwriter and came up through the ranks of the company, achieving the post of senior vice president of agency operations in 1992 and executive vice president in 1995 before taking on his present positions in 1996. He is a past chairman of the National Association for Variable Annuities and serves on the boards of the Insurance Marketplace Standards Association and the American College. He recently spoke with Best's Review about the challenges facing the ACLI.
Q. What do you see as the ACLI's major initiatives for the coming year?
I'll give you the list: the optional federal charter, the LAP [lifetime annuity payout] tax proposal and tax deductions for long-term-care insurance premiums. And then the council, like all business groups, has been interested in tort reform. We'll always keep that on the short list of things to work on. Essentially, we're concerned about what has happened in the United States with jury verdicts and the ability of trial attorneys to bring frivolous lawsuits. The council is also very interested in working with Congress on Social Security reform.
There are a couple of other things. E-commerce and how it is taxed on the Internet has always been on our list. And then there's privacy. We're trying to work with Congress and individual states to make sure we're giving consumers the kind of privacy protection they need-particularly medical privacy-without creating the kind of bureaucracy that would raise costs for our customers. And we're always keeping an eye on taxes, both at the customer and company levels.
Q. On Nov. 12, the ACLI Board of Directors authorized ACLI. staff to seek introduction of legislation in Congress to establish optional federal chartering for life insurers. Why does this require action by Congress?
Essentially, the insurance industry is by law a state-regulated business. In order to give some companies the option to be federally regulated, we need some action by Congress. This would provide a mechanism by which companies would opt Out of state regulation and opt into federal regulation, just like banks do. That's the model we think we need.
The industry sees itself as a national business, and it's gravitating into an international business. So the idea that you have to get policies approved in 50 states, and maybe a policy looking different 26 times because each state has a different provision, has put a burden on the industry. It takes more time to get these things approved, and the administration of them is more difficult. So a company like Nationwide might opt for federal regulation.
Like most companies, Nationwide would have to see how it plays out and what would be the advantages of being federally regulated vs. state regulated. We understand state regulation; we understand the strengths of it and the limitations of it. In the life insurance and financial-services business, we're really a national business. There's no difference between life insurance sold in New York or life insurance sold in Ohio.
Q. You started this federal-chartering endeavor in June 2000. After hearing from ACLI members, what did you find to be the major concern about optional federal chartering?
It started with an assessment of state regulation, including how effective it was and what we were getting for the amount of money being spent. It was a very detailed study. The essence of it was that state regulation could be a lot more effective. So we set up two CEO-led task forces, Track One and Track Two. Track One was to work with the NAIC to modernize state regulation. Track Two was led by another CEO, and that group was studying the feasibility of the dual charter. That work was completed and voted upon by the board on Nov. 12. What we found was that state regulation needed to be modernized. It was just too cumbersome. The NAIC agrees with that, and there's a working group to do that very thing, and it's making fine progress. We believe the best thing for the industry and our customers is that we have the option to be federally or state regulated, so we'll try to get the option, but also continue to work vigorously with states to improve state regulation. Many companies will opt to stay state-regulat ed.
Q. How far along is the ACLI in its federal-chartering endeavor? Are you in the end game? And what steps will you likely have to follow?
The first track, with the NAIC, has been on for some time. There are reforms being made routinely. The second track was just voted on by the board. Now we must seek someone to introduce the draft bill. The timing now is sort of sticky. Congress is spending a lot of time on the stimulus package and getting through airport security. But there is interest in Congress to look at it, to see if it could help the life insurance industry compete with other industries. That's the challenge here: We have to compete with the mutual fund, bank and brokerage industries, and they all have that advantage of speed through a single regulatory body. The key message here is that in the end state, we will end up with both systems.
Q. What are the prospects for any gains in Congress in 2002 on capital-gains treatment for lifetime-annuity payments and on tax-deductibility for long-term-care premiums?
Not being a lobbyist, I have to be careful about making predictions. But the lifetime annuity-payout proposal has received some attention in Congress, and we think we can get a bill introduced. [Editor's note: ACLI subsequently announced introduction of the Lifetime Annuity Payout Act, sponsored by Rep. Phil English, R-Pa., and Rep. Karen Thurman, D-Fla.] It will take some time to educate people about why we think this is a good idea. We have to put more emphasis in this country on developing a guaranteed lifetime income for our citizens. What happens is that people accumulate this money in their annuities and then eventually take it Out in cash or some short-term payout period. We want to [give people an incentive] to annuitize it for their lifetimes. By changing the tax treatment to the capital-gains rate, that would be the incentive. I think this will take some time.
When I think of LTC, unlike the LAP proposal, there's a high degree of interest. When people think about retirement planning, probably the first thing on their agenda is their concern that long-term-care costs would eat into their retirements. So, essentially, it's pretty straightforward.
We think Congress should amend the tax code to permit tax deductions for LTC premiums above the line as an adjustment to income. Congress understands the need for promoting LTC insurance. The challenge is that Congress is focusing right now on trying to create a stimulus to the economy.
Q. Regarding Nationwide Financial, what effects have the economic downturn and the terrorist attacks had?
The economic downturn has had a dramatic impact on our business. About 60% of our earnings are tied to the stock market, in our variable products. We've suffered four straight quarters in a row in which our asset base has shrunk. Our asset base looks like the S&P 500. When the asset base shrinks, the fees we generate from it also shrink. So we, like most companies, are having a tough year on the earnings side.
The second part is that this kind of market also retards sales. People aren't as apt to buy mutual funds or variable annuities or, to some extent, variable life products. So the economy has hurt our sales, but probably more potently, it's dug right into our asset base. What we re doing is shifting to fixed products and fixed annuities. We'll have a record year in selling fixed annuities through the bank channel, but the profitability and returns on the fixed business are not as attractive as in the variable business.
As far as Sept. 11, as tragic as it was, we were not affected financially. We had some death claims. But the major impact on us was that for a considerable time after that, our sales plummeted. People were not in the mood, and rightfully so, to be selling anything and be calling anybody. That's started to come around in October and November.
Q. What's likely to be your fastest-growing business in 2002?
Our life insurance business is our fastest-growing. Our variable universal life/corporate-owned life insurance business is clearly the leader in terms of percentage. That can be misleading, because it's a smaller piece of our business, but it's clearly our lead line in terms of long-term growth potential. The VUL has become very popular among producers, and our customers really like the protection and the flexibility it provides.
Joseph J. Gasper
chairman, American council of Life Insurers; President, chief Operating Officer, Nationwide Financial Services
"A company like Nationwide might opt for federal regulation."
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|Comment:||Gathering support: The American Council of Life Insurers is working with the National Association of Insurance Commissioners to modernize regulation by allowing insurance companies the choice of federal or state oversight.|
|Date:||Jan 1, 2002|
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