The National Association of Insurance Commissioners is using its accreditation process to infringe on the powers of local legislators, a key state lawmaker charged last week.

The verbal sparks here at the NAIC's quarterly meeting came from Rhode Island State Rep. Brian Kennedy, D-Ashaway, who is president-elect of the National Conference of Insurance Legislators.

The practice of granting states NAIC accreditation started in the last decade with the aim of obtaining a uniform application of solvency laws, such as risk-based capital and financial examination rules.

Some state lawmakers in the past have questioned if regulators were stepping over the line into legislative prerogatives in requiring states to enforce certain laws.

At the NAIC's Accreditation Committee meeting here, Rep. Kennedy told regulators that expanding accreditation to new areas threatens state legislative authority.

He referred specifically to the Insurance Receivership Model Act and the Sarbanes-Oxley-inspired amendments to the Model Audit Rule as examples of what he described as controversial legislation forced upon states by virtual fiat from the organization of state insurance regulators.

Several stages lasting about four years must pass before such laws become accreditation standards, during which time regulators look at the kind of acceptance they gain in the states.

NCOIL objected strongly to the amendments to the Model Audit Rule when they were under debate at the NAIC. They require companies to undertake internal control reviews and bar carriers from hiring their auditors as consultants.

One concession from the regulators included the requirement that states had to approve the amendments rather than have them automatically imposed by reference to the Model Audit Rule. But since the Model Audit Rule is itself an accreditation standard, it remained unclear if it was possible for a state to reject the amendments and still remain accredited.

Rhode Island Insurance Commissioner Joe Torti said he hopes to work with Rep. Kennedy to alleviate his concerns, but said there were no immediate plans to alter the current accreditation process.

New York remains the only state without NAIC accreditation, and Eric Dinallo, the state's new acting commissioner, said jokingly, “Please, help me get accredited.” He commented that his state's placement on the NAIC's Accreditation Committee seemed like some kind of cosmic joke.

And while New York remains the only state without accreditation, there was a suggestion voiced by an insurer group at the meeting that the NAIC might want to put Florida in the same category based on recent actions in that state's legislature.

Earlier this year, Florida lawmakers passed a package of measures to deal with a property insurance crisis that included a little-noticed provision to set up an office to reduce collateral requirements for foreign reinsurers. A similar proposal has been discussed by the NAIC for years, but was never acted upon.

“This seems to me like it could put the state's accreditation in jeopardy,” said Mike Koziol, assistant general counsel of the Property Casualty Insurers Association of America, commenting on Florida's move.

Drawing material from past news stories and NAIC press releases, the following is some rudimentary information about the state accreditation program:

o How often must state insurance departments be reviewed?

A comprehensive review by an independent team is required every five years.

o How do states achieve accreditation?

A state legislature must approve a series of specified NAIC model acts, and its insurance department must “have adequate statutory and administrative authority to regulate an insurer's corporate and financial affairs” as well as “the necessary resources to carry out that authority.”

o Why are regular reviews required?

The NAIC checks to confirm that insurance departments “continue to meet baseline financial solvency oversight standards.”

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NCOIL Leader Hits State Accreditation Program

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