Royce Unsatisfied With NAIC Response, Cites NAIC Role in Multi-State Exams

McCarty retorted in the response on NAIC letterhead, “the NAIC as a non-profit corporation does not have regulatory authority, and I am not aware that it has ever presented itself as having such authority. However, its membership is composed of individuals that do have such authority and the NAIC provides a forum and vehicle for its membership to develop standards and collectively set regulatory policy including serving as its members’ collective voice, crafting models laws and guidelines, coordinating examinations, and consulting each other regarding regulatory actions.”

After public remarks by Royce at the Wednesday, amid a conference fretting about the extent to which parts of the industry could come under some sort  of federal regulation, Voss told reporters, “I think we did a damn good job over the past few years.”

European solvency models (to stave off financial implosions) are not necessarily the answer, and perhaps the U.S. is right to not want  to dive right in, Voss noted, pointing out that Europe is backing away from Solvency II, which has been delayed already and may be delayed again, past mid-2013, according to reports.

The Solvency II Directive is aimed at unifying and strengthening over European insurance regulation, taking a capital-intensive approach to solvency supervision. It must be approved by the European Parliament, and there are reports the UK has new concerns.  

Voss, although she had clearly made her “point that the NAIC is not a regulatory body,” did, “in oral testimony before (former) Sen. Christopher Dodd, D-CT, did “ mistakenly uses the word ‘system’ at the end of her response where the word ‘body’ would be more appropriate,” McCarty stated in his response letter to Royce.

Royce, who has been champion of the optional federal charter, said during his address that the fundamental problem remains the same since he last spoke there in 2008. There is still the need to shift a from a fragmented, Balkanized, outdated regulatory model to a more national and international market, according to Royce.

Royce said that an optional federal charter was not panacea but –and always speaking in the past about the charter–“if it had been done, it would have promoted stability, growth here in the United States and I think it would also have allowed for the recognition of the global insurance sector.

Royce is clearly pinning his hopes on the reform modernization report mandated by Dodd Frank which has now been gestating in the Treasury for months.

“It is my hope that Mr. McRaith would put forward something along these lines,” he said. Michael McRaith is director of the Federal Insurance Office (FIO) under the U.S. Treasury. 

Royce even invoked the U.S. Constitution’s Commerce Clause and argued that the commissioner position is too political, as he has seen it used in California for political gain with commissioners running for state offices. “I have noticed it, and so have economists,” Royce claimed. 

“There has to be a better way forward. This is not a world class regulatory structure that we have ended up with. It doesn’t work here and it doesn’t  work well overseas.” 

“I think our insurance sector has long been hampered by a fragmented approach to regulation. It dates back to many of the issues upon the founding of the country when we attempted to give states power and the consequence was we could not create a national market,” he said.  

The law needs to be identical, the law needs to be uniform original intent, he said. Royce  noted that George Miller (founder of the NAIC) had said in 1871: “The Commissioners are now fully prepared to go before their various legislative committees with recommendations for a system of insurance law which shall be the same in all States, not reciprocal but identical, not retaliatory, but uniform.”

“But, unfortunately, we could never get a system under confederation where we could establish a national market, Royce said, and “today, we have 50 different regulators, 50 different sets of rules and 50 different markets,” to which members of the audience whispered that he had missed a few jurisdictions and territories.   

The number is closer to 56. It is unclear whose argument that helps