U.S. Rep. Asks NAIC to Explain if it Is Public or Private Organization

NU Online News Service, Feb. 28, 2:48 p.m. EST

A senior member of the House Financial Services Committee is asking the National Association of Insurance Commissioners to explain the legal reasoning behind its decision to describe itself as a “standard-setting organization” rather than a trade group.

Rep. Ed Royce, R-Calif, made the request in a letter obtained by NU Online News Service that was sent to the NAIC today.

The NAIC was not available for comment.

“Given the impending Federal Insurance Office report to Congress on the state of the U.S. [insurance] regulatory system, understanding precisely what the NAIC is and how it is governed—and reconciling the NAIC's own inherently inconsistent statements about itself—is timely and relevant,” the letter says.

It was sent to Kevin McCarthy, Florida insurance commissioner and president of the NAIC, and Dr. Terri Vaughan, NAIC CEO.

The NAIC’s decision on Dec. 19 to have its membership approve the designation change prompted Royce’s letter.

The NAIC changed its designation soon after a public hearing on insurance modernization and regulation convened by the Treasury Department, where several of those testifying referred to the NAIC as a “trade group,” which by its legal definition, it is.

In his letter, Royce asked:

  • What is NAIC's status? Is it a trade association? Is it a formal part of “the national system of state-based insurance regulation in the U.S.?” If so, why did it (a) testify to Congress, when asked specifically about its status, that it does not “hold ourselves out as some kind of...national regulatory system;” and (b) insist to NCOIL that it is “not considered a...public body” and “does not have any regulatory authority?”
  • Does NAIC agree that as a self-described “private group,” it may not “regulate in the field of interstate commerce?” Do its activities—including but not limited to the Securities Valuation Office, System for Electronic Rate and Form Filing, Financial Standards and Accreditation Program, Market Analysis Procedures Working Group, and National Insurance Producer Registry—amount to regulating interstate commerce and/or exercising governmental authority under color of law?
  • As a 501(c)(3) non-profit corporation, does the NAIC not file a Form 990, a routine financial statement for non-profits, with the Internal Revenue Service? If the NAIC has been formally exempted by the IRS from filling this information, please provide written documentation of this exemption, and explain why the NAIC feels it necessary to keep this disclosure from public scrutiny.

A long-time industry trade-group official, when asked for a response to the Royce letter, said, “These are the questions that we have been asking for a long time.”

Royce said he is writing the letter because “it appears, when it suits its purposes, the NAIC fends off questions about its accountability and transparency by arguing that it is ‘a private group’ that ‘does not have any regulatory authority.’

“This position is legally essential since, under controlling law, no ‘private group or association [may] regulate in the field of interstate commerce.’”

Royce added, “It would now appear this ‘traditional’ position is politically inconvenient given its attempts to posture itself in the new Dodd-Frank/FIO regime.”

Royce also said, “Present circumstances call for an opposite spin, emphasizing NAIC's key role in ‘form[ing] the national system of state-based insurance regulation in the U.S’.”

Royce also contended, “The NAIC’s about-face on its self-proclaimed status in a period of just ten days last summer may best illustrate what appears to be an untenable position.”

He said that on July 28, 2011 before the House Financial Services Committee, NAIC president, Susan Voss, stated that the NAIC was not part of “some kind of...national regulatory system” in response to a question regarding its perceived status as a regulatory body lacking traditional accountability.

Yet, Royce said, “On August 7, 2011, in what appears to be an effort to demonstrate its relevance in the Dodd-Frank/FIO world, the NAIC claimed it was integral to helping ‘form the national system of state-based insurance regulation in the U.S.’ in an attempt to sell the importance of its pronouncement regarding the financial system.

“These positions seem, at the least, inconsistent,” Royce said in his letter.

Comments

Resource Center

View All »

Top 10 Legal Requirements for E-Signatures in Insurance

Want to make sure you’ve covered all your bases when adopting e-signatures? Learn how to...

Get $100 in leads with $0 down!

NetQuote's detailed, real-time leads have boosted sales for thousands of successful local agents across the...

The Growing Role of Excess & Surplus Lines in Today’s...

The excess and surplus market (E&S) provides coverage when standard insurance carriers cannot or will...

Increase Sales Conversion with this Complimentary White Paper

This whitepaper will share proven techniques - used by many of the industry's top producers...

D&O Policy Definitions: Don't Overlook These Critical Terms

Unlike other forms of insurance where standard policy language prevails, with D&O policies, even seemingly...

Environmental Risk: Lessons Learned from Willy Wonka and the Chocolate...

Whether it’s a chocolate factory or an industrial wastewater treatment facility, cleanup and impacts to...

More Data, Earlier: The Value of Incorporating Data and Analytics...

Incorporating more data earlier in claims lifecycles can help you reduce severity payments by 25%*...

How Many Of Your Clients Are At Risk Of Flood?

Every home is vulnerable to flooding. Learn four compelling reasons why discussing flood insurance with...

Gauging your Business Intelligence Analytics Capabilities and the Impact of...

Big Data, Data Lakes and Data Swamps, How to gauge your company's Big Data readiness....

Extending Contact Center Capabilities Across the Insurance Enterprise

Today advancements in technology are making a big impact on business and society. To yield...

PropertyCasualty360 Daily eNews

Get P&C insurance news to stay ahead of the competition in one concise format - FREE. Sign Up Now!

Advertisement. Closing in 15 seconds.