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Regulation and Compliance > State Regulation

State Watchdogs Ponder Fed Back-Up

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The National Association of Insurance Commissioners is discussing a proposal to establish a commission that would facilitate regulatory uniformity for insurance.

As currently envisioned, the proposal would carry the threat of federal pre-emption if states do not enact the uniform standards.

According to a copy of the proposal obtained by National Underwriter, a National Insurance Supervisory Commission would be formed, with corporate governance and bylaws based on those established by the Interstate Insurance Product Regulation Commission.

States that are not members of the proposed commission-and that fail to take independent action on uniformity standards developed by the commission within a given time period-would be subject to pre-emption by a federal Office of Insurance Information.

“The relevant law or regulation of the non-compliant state will be preempted by the OII rule,” the proposal states.

The proposal was discussed by regulators during the NAIC’s quarterly meeting in June, held in Minneapolis.

In a statement, NAIC president Roger Sevigny, who is also New Hampshire Insurance Commissioner, acknowledged the proposal and said it is still being developed.

“NAIC members work continuously to improve the national system of state-based insurance regulation and further our dual goals of enhanced consumer protection and effective solvency oversight,” he said. “This proposal is still being formulated and has not been adopted by the membership. The ongoing dialogue among regulators, state government officials and interested parties will continue in the coming months.”

The proposal states that the commission would be formed through an act of Congress and would develop regulatory standards that would be implemented and enforced by the states. Topics subject to national uniformity would include:

oProducer licensing

oCompany licensing

oAsset-based product review and approval


oSurplus lines

oElements of accreditation


Other topics could be added if a super-majority of the commission agreed, the proposal states.

The purpose of the commission would be “to facilitate uniformity while maintaining and enhancing the consumer protections afforded by the state-based insurance regulatory system,” according to the proposal.

The commission would report to and coordinate with the OII to provide the federal government with insurance-related information, report on the development of implementing national uniformity and provide an international insurance regulatory contact point. The OII, though, would not have a role in the development of standards or operation of the commission.

Responsibilities for the commission would include coordination of state regulators, developing standards and coordinating with federal financial regulators.

A separate proposal under consideration would grant the NAIC itself federal authority, through a bill enacted by Congress, to act as a national regulator for reinsurers. That proposal was first discussed on the floor during the NAIC’s December 2008 meeting, said Lawrence H. Mirel, a partner with Wiley Rein L.L.P., Washington, and former Commissioner of Insurance, Securities and Banking for the District of Columbia. But he said it has run into complications and “is not going to work.”

While the NAIC has tried to deal with problems with that measure, circulating drafts of a proposed bill in March and then again in July, “they have to come up with different ideas,” Mirel said.

The problem has to do with re-defining the NAIC as a regulatory body, since it is a private entity-essentially a trade organization-made up of state regulators, he noted. A better solution would be if regulators could combine an agreement among the states with a federal office such as an OII, he said.

The commission proposal discussed at the June meeting would seem to try to accomplish that, forming a federally authorized, state-formed commission rather than granting regulatory authority to the NAIC itself.

Mirel and Francine L. Semaya, chair of New York law firm Nelson Levine deLuca & Horst’s insurance regulatory and transactional practice group, both say the NAIC is likely considering regulatory landscape changes to show that it can work with the federal government in strengthening and creating uniform state regulation.

“I think the goal [of the regulatory proposals] is to show that the state regulators and the NAIC have a complete handle and are capable of regulating effectively on a national and uniform basis,” Semaya said.


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