National Underwriter’s reporting on the National Association of Insurance Commissioners this issue shows an organization devoted to the public interest but often torn by demands of the industry it regulates.
The NAIC is composed of 56 public officials, insurance commissioners variously elected or appointed to their positions. They hold few open meetings and their records do not have to be made public.
There are only a handful of people representing consumers and over 1,000 insurance lobbyists at a typical NAIC meeting. It must be a relief for those commissioners when they can go into a closed door session, and leave the press and lobbyists outside.
The problem is that these closed-door meetings are also shutting out the public.
Another concern I have with the NAIC is that the model laws and rules devised behind those closed doors often look impressive on paper but they have no force of law unless they are enacted by the individual states. In many instances, states have ignored NAIC models.
For instance, Congress recently passed a provision as part of financial reform assuring that equity indexed annuities (EIAs) would be regulated by states and not by the Securities and Exchange Commission. I may have missed something, but I am still waiting for a state to take charge of EIAs, beyond imposing some easy training obligations on agents who sell them.
The NAIC strengthened its model law in March, including a provision that requires agents to ensure the products are “suitable” for investors based on the client’s age, investment goals and other factors. But that’s not the fiduciary standard the SEC would have imposed.
A concern with EIAs is that they can earn fat commissions for agents, which can influence the producer in recommending these products to clients. If the SEC were watching, compensation for selling EIAs would have to be reasonable–and fully disclosed.
My problem with state regulation is that some states really stink at it.
New Mexico provides a recent case in point. The local Blue Cross Blue Shield was rewarded a 21% health care insurance rate hike, despite the fact, it turns out, that BCBS did not provide the state insurance division with a shred of documentation to justify its request for the increase.
An investigation by the state Attorney General’s office later found the company’s financial data did not justify the hike.
Then there’s former Connecticut Insurance Commissioner Thomas Sullivan, who rubber-stamped a rate increase for some health plans offered by Anthem Blue Cross and Blue Shield by as much as 47%.