NAIC 'Uniformity' Plan Hits Wave of Mistrust

Despite pleas that a proposal for greater regulatory uniformity is in its very early stages, state insurance commissioners ran into a buzz saw of opposition from their legislative counterparts.

In a hearing at the fall meeting of the National Association of Insurance Commissioners, regulators defended the National Insurance Supervisory Commission proposal as a bid to preserve and enhance the state-based system. The proposed NISC, a new entity through which states would adopt consistent rules, is an explicit response to agitation by some in the industry and others for a federal insurance regulator (BestWire, Sept. 21, 2009).

Illinois Insurance Director Michael McRaith summarized the draft NAIC concept plan before skeptical state legislators invited to the NAIC meeting.

Acting through the commission, states would identify and develop standards for uniformity, then enact and enforce those rules. States would have a limited period to adopt these rules before the commission would formulate rules to be implemented by the federal government through a proposed Office of National Insurance within the Treasury Department. McRaith referred to the ONI provision as a "final threat" on behalf of uniformity.

Rhode Island state Rep. Brian Kennedy called the proposal not a carrot and stick, but a hammer. "I can't imagine a legislator in this room voting for this in their home states," said Kennedy, financial services committee chairman for the National Conference of State Legislatures. "We can't give up our ability to vote."

Kentucky state Rep. Robert Damron, president-elect of the National Conference of Insurance Legislators, warned against cutting a deal with Congress -- which he identified as "the enemy" -- that could be seen as taking away authority from state lawmakers and regulators. Damron, a Democrat, said commissioners -- and their governors -- run the risk of facing the same wave of opposition that members of Congress experienced at August town hall events on health care reform.

"If we stay united, I don't think Congress is going to run over us," he said. "I think that eventually they'll just go away."

The limits of the state-based system, as currently configured, are increasingly apparent in areas such as international insurance affairs, because states are constitutionally barred from entering into treaties with foreign governments, McRaith said. But he emphasized that the NISC discussion is just beginning.

"This is a framework for discussion," he said. "This is the starting point."

The Obama administration's regulatory reform modernization proposal, released in June, called for insurance proposals to reflect "increased national uniformity through either a federal charter or effective action by the states" (BestWire, June 17, 2009).

NAIC President Roger Sevigny said nearly 200 insurance bills have been introduced in the current Congress. "The activity that's calling for some sort of reform is here and we can't ignore it." he said.

NCOIL Vice President and North Dakota state Rep. George Keiser said legislators see a NAIC "super-compact" as an inappropriate response.

"If we have an OFC [optional federal charter], we're out of the game. If we have this, legislators are out of the game," he said.

Sevigny found one area of consensus. At the suggestion of several legislators, he called for establishing a "summit" of state regulators, lawmakers and others to evaluate the issue in more detail.