A spokesperson for the National Association of Insurance Commissioners said it will respond in due course to a congressman who is seeking a clarification of the NAIC December decision to describe itself as a “standard-setting organization” rather than a trade group.
The NAIC spokesperson was responding to a letter to the NAIC from Rep. Ed Royce (R-Calif.), a senior member of the House Financial Services Committee asking that the NAIC precisely define what the NAIC is and how it is governed.
See also: Rep Royce's letter to the NAIC
Royce said he is asking for the information “as a means of reconciling the NAIC's own inherently inconsistent statements about itself.”
At the same time, officials of the American Bankers Insurance Association and a former NAIC commissioner who asked not to be named noted that the change has created “deep concern.”
Kevin McKechnie, executive director of the American Bankers Insurance Association, said, NAIC Commissioners “may bristle at the criticism Royce has leveled against them but in my opinion, the NAIC has brought this upon themselves.”
“If they want to be a national regulatory body, petition Congress to allow the NAIC staff to fill out the ranks of the Federal Insurance Office,’ McKechnie said.
“If they want to be a private organization, the NAIC should fill out the appropriate tax forms and register their lobbyists,” McKechnie said.
McKechnie did acknowledge that, “Individually, the commissioners are very smart capable people.”
Collectively, however, he said, “the posturing they undertake to enhance the image of their association tarnishes their reputation, in my view, and undermines the credibility they and their staff work so hard to establish. Royce is right to call them out."
The former commissioner, who asked not to be named, added that the Royce letter points out a “serious concern.”
The former commissioner said that NAIC's new mission statement recognizes that the United States insurance industry needs a national regulatory system and that it needs a central overseer.
“But the NAIC has clearly stated that it won't abide by the public accountability commensurate with such a role, even though it is now basically claiming that authority for itself,” the commissioner said.
“They're putting themselves in a Catch 22,” the commissioner said. “The current situation demonstrates this perfectly, as the Congressman has nicely explained."
The Royce letter was sent to Kevin McCarty, Florida insurance commissioner and president of the NAIC, and Dr. Terri Vaughan, NAIC CEO.
The letter was prompted by the NAIC’s decision December 19 to have its membership approve the change in designation in a conference call of all commissioners.
In his letter, Royce said he “would appreciate your prompt attention to this matter and a substantive written reply.”
The decision to change its designation and to ask for approval of all commissioners was made soon after a public hearing on insurance modernization and regulation convened by the Treasury Department where several of those testifying referred to the NAIC as a “trade group,” which by its legal definition, it is.
Royce noted that, legally, the NAIC is a 501(c)(3) non-profit corporation.
Royce said he is writing the letter, because, “It appears, when it suits its purposes, the NAIC fends off questions about its accountability and transparency by arguing that it is ‘a private group’ that ‘does not have any regulatory authority’.
“This position is legally essential since, under controlling law, no ‘private group or association [may] regulate in the field of interstate commerce’,” Royce said.
But, Royce added, “it would now appear this ‘traditional’ position is politically inconvenient given its attempts to posture itself in the new Dodd-Frank/FIO regime.”