Will these concerns prompt stiffer regulationsimilar to the way Uncle Sam cracked down on investment analysts whose independence and judgment in assessing stocks were called into question? Its not clear anything will change anytime soon, giving the NAIC its opening.

However, there are many concerns the group must address before proceeding. For one, building a new rating agency from scratch would be an enormous undertaking. NAIC runs a very real risk of biting off more than it can chew.

Where would they get the money? During the NAIC budget process, the group said while there is no specific funding yet, other regulatory modernization initiative budget lines would be tapped. Okay, but beyond the initial seed money, how would the NAIC finance its agency? Will they have to make NAIC ratings mandatory, and charge insurers for the privilege?

This raises another problem. However the NAIC implements its idea, its doubtful the new rating agency would compete with existing firms on a level playing field. Even without a mandate, all carriers would likely feel pressured to get an NAIC rating.

Would the establishment of an NAIC ratings arm drive some, if not all of the current private agencies out of the business? Might an NAIC-sanctioned organization eventually become the only agency in the market? That would not be a welcome development for either insurers or their policyholders.

The concern is magnified when you ask where the NAIC would get the talent to run its new organization. Wouldnt they have to raid existing firms, thus diluting the talent pool available for everyone to get the job done? Or would they train novices in the field, creating another set of problems?

In addition, while the new agency would supposedly be independent from the NAIC, it is hard to imagine individual regulators not being tempted to try to influence the ratings of carriers domiciled in their states.

When you factor in the revolving door at work, with regulators regularly joining insurance departments from the industry, only to eventually head right back for lucrative gigs after putting a few years into public service, that precious aura of independence would be even harder to maintain over the long haul.

Despite these concerns, at this point I would not dismiss the notion out of hand. Since state regulators already do a good job assuring solvency, why not let them hand down financial strength and claims-paying ability ratings?

What do you folks think?