Getting Clarity on the NAIC

“The NAIC allows access to the process, giving any interested party the opportunity to follow the development of a model and monitor on behalf of their constituents,” Voss adds. She notes also that call notices and drafts are posted on the NAIC website, and that Web-based viewing technology is used during drafting calls.

For Cathy Weatherford, a former NAIC CEO and current president and CEO of the Insured Retirement Institute, Washington, the NAIC could ensure more equitable outcomes by taking a more “holistic approach” to building model laws and regulations. She says an improved annuity suitability model, which Iowa and Wisconsin have so far adopted, could have been achieved if the NAIC had more thoroughly researched the model law’s impact on, and elicited greater input from, the various stakeholders.

Letting consumers have a say

Chief among them are consumers, whom Poolman says could be better represented at NAIC meetings. “There are more paid than unpaid consumer reps at meetings, many of whom represent the interests of a certain organization,” he says. “The most vocal consumers [attack] the NAIC because they think it’s their role to do so. More independent consumer reps are needed.” (Editor’s Note: For more on the NAIC lobbying process, see Trevor Thomas’ feature in this issue.)

The more that consumer and industry reps believe the NAIC has adequately taken into account their concerns on an issue, sources say, the greater the chance of securing an NAIC recommendation where it counts: in the 50 state legislatures that ultimately must enact NAIC proposals.

On this score, experts widely agree that the organization’s track record has improved markedly in recent years. Since the NAIC bifurcated its legislative process two years ago–giving priority to proposals that secure a two-thirds vote of the group’s Plenary and Executive Committee members; and classifying other measures as voluntary “advisories”–the organization has had greater success in securing the states’ adoption of model laws and regulations.

“By prioritizing model legislation, you increase your chances of success dramatically,” says Atterholt. “Conversely, the more model laws you suggest, the likelier it is that a legislature will depart from the NAIC’s intent through modifications and amendments.”

To help secure buy-ins earlier in the model law adoption process, sources say, the NAIC has enhanced communications with senators and representatives through the National Conference of State Legislatures and the National Conference of Insurance Legislators. NCOIL representatives also regularly attend NAIC meetings to offer input on draft proposals.

Herding Cats

Emblematic of the NAIC’s more notable successes in recent years is the Interstate Insurance Compact, which aims to improve speed-to-market conditions for life insurance, annuity, disability income and long-term care products by establishing a single point-of-filing for product review. The NAIC members, sources say, brought a laser-like focus to winning state legislatures’ approval of the compact, as the commissioners themselves lobbied their states on behalf of the effort.

“Universally embraced by the NAIC, the Interstate Compact was a wonderful, coordinated effort that had a huge policy impact,” says Atterholt. “The NAIC put a lot of resources behind the initiative. And the Compact thwarted a federal takeover of insurance regulation, which was a key motivator underpinning the push.”

To date, 36 states have adopted the Compact–the model law became operational in 2006 after 26 states signed on–and it’s now under consideration in several other states. Yet, as backers of the initiative concede, it would be unusual for the NAIC to achieve a 100% adoption rate among all 50 states, the District of Columbia and American territories (American Somoa, Guam, Puerto Rico, the U.S. Virgin Islands and the Northern Mariana Islands.)

That is, they say, due to the inherent difficultly of achieving uniformity in a state-based regulatory system that involves so many jurisdictions. The challenge is all the greater because of the often high turnover of key players. Among them: state legislators who have limited time to devote to NAIC prerogatives because they work part-time and/or are subject to term limits.

And then there are the insurance commissioners. Many of them, either because they failed to get reelected in the recent November elections or reappointed by their states’ governors, may not be returning to the NAIC in 2011. The hemorrhaging of expertise, as in past election years, is an ongoing concern.

Dealing with the Politics

(An NAIC spokesperson said at press time that the organization will have a still undetermined number of new members appointed by governors. Of the four commissioners who were up for election this year–those in California, Georgia and Oklahoma and Kansas–only the last will remain in office.)

“The insurance industry is regulated by people–the commissioners–who come and go almost yearly,” says George Dale, a senior public policy advisor at the law firm Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, Jackson, Miss., and a former Mississippi insurance commissioner. “That is a serious weakness because it can result in a loss of momentum on key initiatives.”

The loss of talent can be all the greater if voters and public officials to whom the insurance commissioners are accountable–individually and, under the NAIC umbrella, collectively–remove commissioners from office en masse because they’re perceived as acting contrary to their states’ interests. That threat is especially evident, says Atterholt, when the commissioners take positions on such politically charged issues as healthcare, climate change and federal regulation of the insurance industry.

That the NAIC accomplishes as much as it does, he adds, is testament to the “comity” among members who have multiple constituencies, are divided by political philosophy and party, and who bring to their positions widely varying levels of expertise. But Hampton says that one’s background in the insurance industry is not a reliable indicator of how effective a commissioner will be on joining the NAIC.

“You don’t have to be like me: someone who came from the field,” says Hampton. “This is a total misconception. Some of the best commissioners hail from other disciplines. The key to success is how much you’re willing to work at the process and be fair in taking into account various viewpoints when arriving at decisions.”

Perhaps. But some question whether the commissioners can be entirely fair and free of conflicts given the character of the NAIC–a not-for-profit organization composed of public officials that, when it deems necessary, will withhold information from the public. Additional possible conflicts of interest arise from how the NAIC generates revenue through fees, publications, subscriptions, state assessments and educational services from industry players that have a vested interest in the NAIC’s decisions. (Editor’s Note: For more on how the NAIC makes and spends its revenue, see Elizabeth Festa’s feature on p.16 of this issue.)

Others, however, see the revenue component as a non-issue.

“The insurance industry has to be expected to pay for good quality regulation,” says Monroe. “This is simply part of doing business.”

Adds Atterholt: “The NAIC has kept funding from distorting the process. It’s funded by member companies, but it would be unfair to say the companies control the process. The NAIC has done a pretty good job of putting a firewall between the two.”