The Royce-NAIC spat heats up
The National Association of Insurance Commissioners is neither a regulator nor a trade association, but an “association of elected and appointed state regulatory officials charged with regulating the insurance industry under state law,” Florida Insurance Commissioner Kevin McCarty writes in a March 20 letter to Rep. Ed Royce, R-Calif.
McCarty, the NAIC’s current president, offered the letter as a response to an earlier missive from Royce asking that the NAIC more clearly define its mission, particularly in light of what the congressman characterized as press reports that seemed to indicate the group was trying “to brand itself as a ‘standard-setting organization’ rather than a trade group.”
McCarty notes in his reply that while the NAIC as an association does not have regulatory authority, its members do. He said the group looks to identify best standards and practices, but whether states choose to implement such standards remains voluntary. The NAIC estimates its work is referenced in more than 4,000 state statutes, regulations, bulletins, attorney general opinions and court cases.
“The NAIC therefore does play an integral role in the national system of state based regulation as a forum for standard setting, but it is not a regulator,” McCarty wrote. “There can be confusion when collective state regulatory actions developed at an NAIC meeting are mistakenly referred to as actions ‘of the NAIC’ in the press or elsewhere, but at no time has the organization itself represented that it is a regulator.”
He also disagreed with Royce’s contention that regulatory services provided by the group to individual states amount to “regulating interstate commerce or exercising regulatory authority.” In particular, he highlighted the work of the NAIC’s Securities Valuation Office, which conducts credit quality assessments of insurers’ investments; the Financial Standards and Accreditation Program, which sets standards for states to meet with respect to how they monitory financial solvency; the National Insurance Producer Registry, which transmits electronic submissions of agent licensing and company appointments; and the System for Electronic Rate and Form Filing, which allows companies to submit insurance policy rate and form filings to the states.
The states’ use of SERFF, in particular, has come under heightened scrutiny from the industry, of late, specifically because of the potential that it could be used for regulatory purposes. Last month, several insurance trade association expressed “grave concern” over the NAIC’s response to the states’ interest in using SERFF to support creation of health insurance exchanges under the Patient Protection and Affordable Care Act with a Dec. 6 memo that stated there was “nothing that precludes the use of SERFF for regulatory purposes beyond rate and form filing.”
What really didn’t sit well with the industry is the NAIC’s Executive Committee handing down in that memo a directive that SERFF’s board “continue to support these purposes on a going-forward basis, keeping in mind that the board’s responsibilities are limited to rate and form filing.” SERFF is run by a board that includes both industry and regulator representatives, although there have been rumblings for some time about the NAIC’s interest in having more explicit authority over the board.
“Both the tone and substance of the Memorandum suggest an NAIC Executive Committee view regarding the role of the SERFF board and industry in future SERFF governance to which the insurance associations must respectfully, yet strongly, object,” the groups wrote.
Speaking at the Networks Financial Institute’s March 21 conference on insurance regulation, Royce acknowledged that he had received McCarty’s response, but didn’t say whether he felt the group had answered his questions. He said the letter was motivated by his expectation that the upcoming release of the Federal Insurance Office’s report would kick off a thorough discussion on the future of insurance regulation. He said he didn’t “believe we can have that discussion when one of the major players cannot define its own status.”
Royce, who has in the past sponsored legislation to allow insurers and insurance brokers to opt to charter at the federal level, said he felt the state-based regulatory system was “not a world class regulatory structure,” and that problems in the system resembled problems the nation experienced under the original Articles of Confederation. Instead, he said, the tools of insurance regulation, and particularly rate regulation, have become “punitive measures used for political gain.”
“Instead of having a national market to drive down prices, we have 50 separate markets and we have, as a consequence, rate regulation,” Royce said. “I’m from California, so I can tell you, whether it was under Republican administrations or Democratic administrations, it was used for political gain.”
Iowa Insurance Commissioner Susan Voss – NAIC’s immediate past president, who was also at the NFI conference – said she didn’t know the reasons for Royce’s letter, positing that perhaps “he’s heard something or had some complaints.”
“We’ve tried to do a much better job of being more open and transparent through the years,” Voss said. “There’s nothing secretive about our meetings. The only secret meetings I know of are where a specific company is going to be discussed, and probably, if you represent a company, you don’t want that to be in an open meeting.”