State legislators continue to press state insurance regulators to examine the process by which they develop regulatory requirements.

In a May 3 letter written by Sen. Alan Sanborn, R-11th District-Mich., president of the National Conference of Insurance Legislators, Troy, N.Y., NCOIL questioned the accreditation process of state insurance regulators.

“Disregarding questions of authority, NCOIL believes that the manner in which models are chosen as accreditation standards has been subtly degraded over the years–and perhaps, in a manner of speaking, when no one was looking,” wrote Sanborn to Walter Bell, president of the National Association of Insurance Commissioners and Alabama insurance commissioner.

The letter continued, “Since the accreditation program was broached in the late 1980s and early 1990s, NCOIL has challenged the NAIC over its proposed sanctions of companies in unaccredited states, inserted essential NCOIL amendments to proposed accreditation models, and–when a rush to include more standards occurred–insisted on a responsible and measured procedure for adding new models or amendments.”

NAIC procedures, according to Sanborn, have cut back the 3-year exposure period proposed by NCOIL to 2 years, and now have cut that time frame down to 1 year.

Language regarding cost for compliance and the impact on states has been “weakened” with an additional “caveat” “if reasonably quantifiable,” Sanborn noted.

An April 2 NAIC response stating that “‘from start to finish, the entire process to consider amendments and additions to accreditation standards spans nearly 5 years,’ while perhaps technically accurate, seems a bit disingenuous,” Sanborn wrote.

He explained that 2 of those 5 years give legislatures no choice: They are required by the NAIC to adopt the model and remain accredited. So, he continued, states are left only 1 year to expose the model after the NAIC deems the model or revision to the model a potential accreditation standard.

The letter asked what benefit exists for making a model that is “untried and untested–that has been passed in only 1 or 2 states–a mandatory accreditation standard.” The letter reiterates an NCOIL position that no standard should become mandatory unless it has been passed by at least 26 states. [See story on this page for NAIC's revised policy regarding models.]

Sanborn cites as an example the adoption of “revisions to the Model Audit Rule at a time when many, even federal agencies, question that the costs of Sarbanes-Oxley corporate governance may far outweigh the benefits.”

The NAIC said it received the May 3 Sanborn letter but had no response at this time.

It also offered an example of a timeline on how the accreditation process works:

–Spring 2007–If new models or revisions to models adopted by the NAIC’s executive and plenary in 2006 were being considered as accreditation standards by the Financial Regulation Standards Accreditation Committee, then these models or revisions to models would be exposed for 30 days.

–Summer 2007–The FRSAC would have a public hearing to discuss comment letters and receive oral testimony. FRSAC then votes on whether the items should be adopted.

–Fall 2007–Executive and plenary would vote on the modification to the standards. A 60% majority of attending members is required to adopt the proposal; once adopted by Plenary, the standard will become effective 2 years immediately following the next Jan. 1. (Jan. 1, 2010.)