(AP Photo/Jorge Saenz)

The unilateral decision by officials of National Association of Insurance Commissioners (NAIC) to broaden the use of the System for Electronic Rate and Form Filing (SERFF) to include regulatory purposes is coming under strong fire from industry trade groups.

In a letter dated Feb. 22, four industry trade groups voiced “grave concern” with a NAIC executive committee memorandum filed Dec. 6 stating that “there is nothing that precludes the use of SERFF for regulatory purposes beyond rate and form filing.”

The industry’s latest concerns were voiced in a letter sent by officials of the American Council of Life Insurers (ACLI); the American Insurance Association (AIA); the National Association of Mutual Insurance Companies (NAMIC) and the Property Casualty Insurers Association of America (PCI).

What triggered the current concern is the request of states to use SERFF to support creation and operation of health insurance exchanges, which under the healthcare reform law will go into operation in 2014.

The December memorandum approved the use of SERFF in implementing and running the health insurance exchanges.

But, what most concerns industry is that the memo goes on to say that, “Furthermore, some state insurance regulators have requested that SERFF be used for other non-rate and form filing purposes.

“In fact, a handful of states have implemented SERFF for alternative purposes,” the memo adds. “We understand that on an Oct. 5, 2011 conference call the SERFF board expressed support for allowing the use of SERFF for alternative purposes.”

Such additonal uses include annual reports (advisory organizations, financial, etc.) and utilization review filings. “The NAIC executive committee hereby states their full support for alternative uses of SERFF, recognizing that the use of SERFF for filing submission, review and approval should not be compromised in the process, and directs the [SERFF] board to continue to support these purposes on a going forward basis, keeping in mind that the board’s responsibilities are limited to rate and form filing.”

That goes to the heart of the industry concern that, “What the NAIC’s current position means is that if the SERFF board voted to oppose a fee increase with a supermajority vote, such action would be sent to the NAIC Executive Committee, which could overturn it,” one source said.

“With so many states now mandating the use of SERFF, the SERFF board being limited to an advisory function is a significant change,” the source said.

The source said that a primary concern is that the “NAIC could greatly expand its revenues through increases in SERFF fees and could expand SERFF into a tool to collect additional data, as has been suggested in the past.”

In their letter, the trade group officials state that, “ Both the tone and substance of the Memorandum suggest a NAIC Executive Committee view regarding the role of the SERFF board and industry in future SERFF governance to which the insurance associations must respectfully, yet strongly, object.”

The letter adds that, “The NAIC Executive Committee states in its 12/6/11 Memorandum that the SERFF Board is an advisory committee and repeatedly directs the SERFF Board to support certain uses of SERFF or to take certain actions that conflict with the express language of the SERFF bylaws.

 “These statements also appear dismissive of the past partnership between the industry and the regulators which has led to SERFF’s success,” the letter said.

The issue was discussed this morning at one of the opening sessions of the NAIC’s spring meeting, being held in New Orleans.

The topic has been simmering for more than two years. According to industry officials. The NAIC wants to amend the bylaws of its SERFF system so that the joint industry-regulatory board that now governs SERFF would become an advisory function to the NAIC executive committee, according to several industry officials who asked not to be quoted.

The NAIC sees this as an issue of corporate governance, according to these sources.

According to these officials, the industry’s perspective is that regulators and the industry originally had considered a number of ways to structure SERFF when it was organized, and agreed to house it at the NAIC so long as there were safeguards to prevent public disclosure of SERFF filings and the use of SERFF for other purposes and as well as assuring that SERFF fees were reasonable and used only for SERFF purposes rather than to subsidize other NAIC activities.

The source said that those safeguards were institutionalized in the SERFF bylaws through super-majority voting requirements (10 of 13) on any fee increases or major changes in SERFF operations.

The Feb. 22 acknowledged that industry is “fully aware and agree that the SERFF vision may need to evolve to meet regulators’ and industry’s changing needs.”