Wednesday, May 17, 2017

A Look In at Life Insurance Licensing

From time-to-time this Blog looks at state insurance licensing through the lens of underserved communities' access to the financial advice and products necessary to achieve financial security. Research suggests that when there are fewer unnecessary roadblocks standing in the way of financial professionals, more communities will have access to financial advice and products.

On one front this year, there is very good news.

Fewer and fewer states are requiring candidates to pass TWO tests for ONE insurance license.  On March 1, 2017, Nevada followed in the footsteps of Virginia, Washington, New Jersey and others when it made a decision to score its General and State exams as one. Colorado is also expected to make a change at some point in the near future.

If experience in other states holds in Nevada and Colorado, the states will see less disparate impact as a result of this change and more financial professionals in communities throughout their states.

Why do some states require two tests?  
The answer is not clear.  One theory is that two-part exams stem from an era when states tested non-resident licensees and administered tests on paper.  At that time, it made sense to have a modular exam, so non-residents could sit for one portion and not have to take the general test as well.  In today's world of reciprocity and computers, the need for two exams no longer exists.

Importantly, the National Association of Insurance Commissioners (NAIC) has found using two tests does not increase consumer protection.  Instead, as one would expect, requiring two exams for one license actually increases failures.  Here's what the organization's handbook says:
Preliminary review of pass rates indicates a tendency for more candidates to fail in the states that require two-part exams. There is no evidence that two-part exams increase consumer protections or that the states that administer one-part exams license producers who do not know applicable state law. The states are encouraged to move to one- part exams to allow for more success among candidates without jeopardizing consumer protections.,
The map below shows the current state of play.  Fewer and fewer states are relying on this outdated practice and consumers stand to benefit.

* Updated 7/31