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Regulation and Compliance > State Regulation

Rep. Royce again questions NAIC's authority

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The National Association of Insurance Commissioners should answer tough questions about what it is and the true scope of its authority, according to a senior member of the House Financial Services Committee.

Rep. Ed Royce, R-Calif., who is also chairman of the House Foreign Affairs Committee, said in a speech before the National Risk Retention Association in northern Virginia that NAIC has been schizophrenic, with NAIC officials telling the industry, members of Congress and federal regulators “that they are not a regulatory body. They are an association made up of regulators.”

See also: Royce defends FIO, questions NAIC’s credibility

“On the other hand,” he added, “they impose their will on companies – and states – through national accreditation standards … while representing the United States in international negotiations on rules they have no ability to enforce on a uniform basis.”

Royce said the House FSC should examine the issue.

An NAIC spokesperson said the association had no comment at this time.

Royce has also been highly critical of the NAIC’s use of a Delaware-based business to provide state-regulatory officials with travel money so they can spread the gospel of state regulation. Royce said his analysis is that this company, called NAIC-Newco, will provide state-insurance officials with $1.3 million in travel funds this year.

“I do not think it is too much to ask that the $80 million trade association define who it is and what it can do…but of course tough questions draw criticism,” Royce said.

Royce also discussed the long-awaited regulation modernization report being crafted by the Federal Insurance Office, explaining that he sees it “as a watershed moment for future regulation” of the insurance industry.

He said he will ask the FSC for a hearing because creation of the FIO, Federal Reserve Board oversight of insurers that own thrifts, and the designation of some insurers as systemically significant have created a “new normal for insurance regulation” — a system of “layered, overlapping regulation.”

Specifically, he said the states “are the historical regulator,” the NAIC is the “de facto regulator,” and “the federal government is the new and expanding regulator.”

He also noted that, through its disparate impact regulation, “the Department of Housing and Urban Development is venturing into the world of homeowners insurance.”

Royce is a strong supporter of the FIO, and testified in June before the House FSC that Congress should support a strong role for the new agency in overseeing the insurance industry because state regulation discourages uniformity.

Royce said he is hopeful the upcoming FIO report “will point to areas where we can improve uniformity of regulation and licensing and lower costs to consumers.”

He said insurers and agents “should not let the moment go by” without pushing back against the sentiment to maintain the status quo. 

He said release of the report offers an opportunity for the industry “to look for ways to improve regulation, while increasing uniformity and the role of market forces.”

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