NU Online News Service, Dec.7, 12:14 P.m.EST

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SAN FRANCISCO–State legislators have slammed a NationalAssociation of Insurance Commissioners proposal for regulatoryreform as a measure permitting federal authorities to take overtheir insurance lawmaking function.

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The draft proposal, which was criticized as something that couldsupplant state legislatures' authority to regulate insurance, wasput up for discussion during a session of the NAIC 2009 WinterNational Meeting here.

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As explained by Illinois Insurance Director Michael McRaith, thedraft would call for an act of Congress that would authorize statesto form a body called the National Insurance Supervisory Commission(NISC). According to the draft, the commission members can consistonly of "the primary insurance regulator of each state orterritory."

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Mr. McRaith said the states would then, through legislativeaction, join the commission, and through the commission, stateswould develop uniform regulatory standards in certain subjectmatters. States would then be responsible for implementing andenforcing the standards.

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However, Mr. McRaith said if a state fails to comply with thenational standard, there would be federal preemption through afederal insurance office.

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In that case, the draft explains, "The OII/ONI [Office ofInsurance Information/Office of National Insurance] will receiveauthority to promulgate rules based on the commission standards."Those rules would preempt any conflicting state laws orregulations, the draft notes.

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NAIC President and New Hampshire Insurance Commissioner RogerSevigny said the NAIC developed this draft because it wanted to beproactive rather than reactive regarding regulatory modernization.With Congress showing interest in insurance regulation, Mr. Sevignysaid the NISC proposal allows the states to remain the functionalregulator of insurance.

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State legislators, however, said they are not happy with theproposal as it stands.

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Kentucky State Representative Bob Damron, D-Nicholasville, saidthere is no solid, bi-partisan commitment from Congress to regulateinsurance, and that the NAIC should join with other state-basedgroups in opposing federal intervention altogether rather thanseeking a partnership with the feds through NISC.

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"You cannot let the federal government get involved in thisprocess and then expect them to let you run the show," he toldregulators.

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He also said the NAIC risks a rebellion among state legislatorsby advocating a plan that takes away their legislativeauthority.

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Rhode Island State Rep. Brian Patrick Kennedy, D-Hopkinton,speaking on behalf of the National Conference of State Legislators,furthered that point by stating that the proposal asks legislaturesto approve NISC standards, but then once approved, the legislaturescould not exercise their "day-to-day legislative clarity" over thelines of insurance under jurisdiction of the commission.

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He also criticized the federal preemption provision, declaring,"Advocating for federal preemption of sovereign states that choosenot to participate is unacceptable, and NCSL will oppose it."

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NAIC regulators are seeking an equal role for themselves withcommissioners at the federal level, but they are doing it "at thedirect expense of state legislators," said Mr. Kennedy.

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Insurance industry representatives expressed support for thegoal of regulatory modernization and uniformity, but took issuewith parts of the NISC proposal. Deirdre Manna, of the PropertyCasualty Insurers Association of America (PCI), said NISC shouldnot be able to implement national standards that have not firstbeen adopted by a certain number of states.

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Bob Detlefsen, of the National Association of Mutual InsuranceCompanies, echoing Rep. Damron's concerns, said the idea that theNAIC could imbed within the federal government a commission ofregulators, and have the fed insurance office do the bidding of thecommission, "seems a little unrealistic."

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Mr. McRaith closed the session by questioning whether some ofthe loudest critics have read through the draft. Earlier in themeeting, he said after reading letters received in response to thedraft, "clearly there is either a factual or conceptualmisunderstanding of the proposal as framed."

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The draft can be accessed athttp://www.naic.org/committees_ex_regulatory_modernization_sg.htm.

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