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Regulation and Compliance > State Regulation

Smarting From SMART

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It looks like the National Association of Insurance Commissioners has decided on a high-stakes strategy in the game of federal regulation, something perhaps along the lines of winner takes all. Either that or its tone deafness exceeds anything I would have thought possible.

This at least was my reaction to the audacious response of NAIC to a letter from Rep. Mike Oxley, R-Ohio, the powerful chairman of the House Financial Services Committee, and Rep. Richard Baker, R-La., chairman of the House Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises.

Oxley and Bakers letter essentially had asked the commissioners to become more involved in drafting the State Modernization and Regulatory Transparency Act, the major elements of which the committee had first put forth last year. It also expressed concern about the lack of communication between the NAIC and Congress in recent months.

Now, Im sure the congressmen would like input from NAIC, but Im also sure they are perfectly capable of moving ahead with or without NAICs involvement. So, their letter can be seen from one perspective as a congressional courtesy.

As reported by Arthur Postal, the NAICs response was not particularly appreciated by the committee leadership, to put it mildly. For instead of reaching back with a constructive gesture, the NAIC, through its president, Pennsylvania Commissioner Diane Koken, gave the committee the back of its hand.

SMART, Kokens letter says, “is not a concept that NAIC would suggest to Congress.”

Why? Well it seems that NAIC formed review teams to go through the SMART draft to see what its impact on state insurance regulation would be. There were five major findings (and I quote):

“1. The SMART Act would substantially and negatively impact state regulatory authority to supervise property-casualty, life, and health insurance, as well as reinsurance, by establishing federally mandated standards and preempting state laws that disagree with them.

“2. The SMART Act would create unhealthy regulatory confusion in insurance markets by subjecting state regulations and orders to second-guessing and possible interference by a new federal entity called the State-National Insurance Coordination Partnership. In addition to raising a host of serious legal and practical concerns regarding its composition, powers, and administration, this Partnership would encourage time-consuming and expensive litigation by those who disagree with state regulatory actions, during which the legitimacy of state actions would hang under a cloud of doubt until a final resolution is reached in federal courts.

“3. The SMART Act would remove the ability for independent judgment and action by state regulators to protect consumers under state laws and regulations in such important areas as supervising rates and conducting market conduct exams.

“4. In general, the time limits for states to implement the SMART Acts requirements are too short, and many of the Acts provisions seem impractical, unworkable, or detrimental to state consumer protection efforts.

“5. Federal legislation is generally not needed to implement the various provisions of the NAIC regulatory modernization Roadmap. However, federal legislation would be welcome to enable access by all state insurance regulators to the FBI criminal database, to enable sharing of confidential regulatory information among federal and state regulatory agencies, granting liability protection to NAIC as the central data exchange for states, and to grant states equal receivership powers with the federal government.”

The sweep of this is breathtakingnot to mention condescendingin its rejection of something very important to two very powerful members of Congress.

As I said up top, it looks like a high-stakes game for NAIC. Lets hope, for their sake, it doesnt turn out to be strip poker.

Steve Piontek


Reproduced from National Underwriter Edition, April 8, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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