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

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Rep. Ed Royce, R-Calif., who has emerged recently to call the NAIC to the carpet with respect to its stated authority and identity, said Wednesday that he still has problems with the NAIC’s response that it is not a regulator.

Royce expressed that he has disagreement on “several issues,” notwithstanding its assertion that it is a 501(c)(3) association without “regulatory authority.”

He was referring to a March 20 response letter the NAIC President and Florida Insurance Commissioner Kevin McCarty sent in reply to a Royce demand.See: // 

Specifically, Royce, a senior House Financial Services Committee member a few notches under Chairman Spencer Bachus, R-Al, who Royce once challenged for the chairman position, mentioned two multi-state market conduct examinations. 

These are significant, according to Royce because they have been seemingly overseen, in his view, by the NAIC, so thus done in a regulatory capacity, although others noted that was an accreditation/Dingell-era complaint, which some day is outdated, and others think reveals a vibrant argumentthatthe NAIC acts as a regulator.

The first relates to a $10 million settlement reached after an 18-month “targeted NAIC multi-state market conduct examination of Allstate’s claims-handling practices, as announced in part by the  then-New York State Insurance Superintendent James J. Wrynn in October 2010. The second instance named by Royce was another multi-state exam announced by Washington State regulators  which bears similar language in that it was an NAIC effort.

This second case is likely a national, multi-state market conduct examination of The HealthMarkets, Inc., (formerly UICI), and its affiliated companies that found multiple problems involving consumer disclosures, oversight and training of agents, claims handling, and complaint-handling practices.

The Washington State notice states the exam was “initiated in 2005 by the National Association of Insurance Commissioners (NAIC) and led by Washington State Insurance Commissioner Mike Kreidler and Alaska Division of Insurance Director Linda Hall. Thirty-three states and the District of Columbia participated in the examination.”

In both those instances, the NAIC was indeed taking regulatory action, Royce contended to NU. 

Royce spoke to National Underwriter Life & Health after a luncheon presentation here in Washington at an insurance regulatory reform seminar, the 8th Annual Networks Financial Institute Summit in association with Indiana State University and corporate sponsors. 

“He would be incorrect,” retorted Susan Voss, NAIC immediate past president and Iowa insurance commissioner, regarding the charge that the NAIC had been assuming a regulatory position in the multi-state exams. McCarty, in his letter, sanctioned the NAIC membership’s coordination of exams, as was most recently done with Prudential Insurance on the Death Master List/unclaimed property issue. 

Voss was also speaker at the conference as well, and is no stranger to Washington and the international insurance regulatory arena. Voss, who spoke early in the morning, sat through Royce’s presentation, although Royce only appeared at lunchtime for his address.

“States come together, “to work together to do data calls, surveys,” and on exams, Voss said to reporters. “I wouldn’t characterize the NAIC as doing market conduct exams.” 

Royce asked in his late February letter to the NAIC whether the NAIC was  private, not-for-profit, or a “standard setting regulatory agency. See: 

“The NAIC emphasizes that it is a ‘private group’ when questions come up regarding its accountability and transparency, then just as quickly play up its role in ‘forming the national system of state-based insurance regulation in the U.S.’  These two positions seem, at the least, inconsistent,” Royce stated in talking points from his speech Wednesday.

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


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