Filed Under:Your Practice, Regulatory

NAIC Clarifies Its Role

Rep. Ed Royce, R-Calif. (AP Photo/Charles Dharapak)
Rep. Ed Royce, R-Calif. (AP Photo/Charles Dharapak)

The National Association of Insurance Commissioners (NAIC) is acknowledging in a letter to a member of Congress that it is not a “regulatory body,” nor a “standard-setter,”  but acts to provide a “forum and vehicle” for its members, who are standard-setters.

The NAIC’s lengthy response was at the request of Rep. Ed Royce, R-Calif. Royce, a senior member of the House Financial Services Committee.

Royce, in a letter dated Feb. 28, asked the NAIC to explain the legal reasoning behind its decision to describe itself as a “standard-setting organization” rather than a trade group.

The NAIC response was signed by Kevin McCarty, Florida insurance commissioner and NAIC president.

It was obtained by the National Underwriter last night.

Specifically, McCarty said, “The NAIC does provide a forum for members to establish regulatory policy, standards, and best practices. However, the decision to implement such standards remains with the individual states."

At the same time, McCarty voiced indignation that critics, including those at trade groups, style it a “trade group.”

He acknowledged that the NAIC is registered with the Internal Revenue Service as a non-profit.

But, he said, “The NAIC is not a trade association and you are correct that members of the NAIC object to its characterization as such.”

McCarty said a “trade association is made up of businesses or business people in a common field and is designed to assist its members and its industry in dealing with mutual business problems.”

By contrast, he said, “The NAIC is an association of elected and appointed state regulatory officials charged with regulating the insurance industry under state law.”

He acknowledged in the letter that there “may be some confusion” regarding the role of the NAIC in the national state-based system of insurance regulation and I hope this letter serves as sufficient clarification for you.”

McCarty said that the NAIC as an association does not have regulatory authority, but its members do.

“The association does provide a forum for members to establish regulatory policy, standards and best practices,” McCarty said, but the decision to implement such standards remains with the individual states.

“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 said.

“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 represented itself as a regulator,” McCarty said.

McCarty responds to the particular NAIC activities Royce talked about in his inquiry by stating that, “The NAIC activities you have identified do not amount to regulating interstate commerce or exercising regulatory authority as the NAIC simply provides these resources to assist the states in carrying out their regulatory functions.”

He said that this is consistent both with [former NAIC president and Iowa] Commissioner [Susan] Voss’s testimony, which indicated that the NAIC is an association, is not a national or federal regulator, and the NAIC press release you cited in your letter which mentioned the role centralized resources of the NAIC play in assisting state regulators in carrying out their regulatory function.”

Royce asked for the clarification within the context of the impending Federal Insurance Office report to Congress on the state of the U.S. [insurance] regulatory system.

Royce said that, “understanding precisely what the NAIC is and how it is governed—and reconciling the NAIC's own inherently inconsistent statements about itself—is timely and relevant,”

The letter was prompted by the NAIC’s decision on December 19 to have its membership approve the change in designation in a conference call of all commissioners.

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