Let The Turf War Begin!

Is the National Association of Insurance Commissioners' accreditation program an infringement of state legislators' turf? And even if it is, since the program to establish regulatory standards has been around for so long, why is the president-elect of the National Conference of Insurance Legislators–Brian Kennedy–raising a ruckus now?

Rep. Kennedy–a Rhode Island Democrat–challenged the NAIC's accreditation program at the group's recent quarterly meeting in New York, contending that a private association forcing states to adopt certain model laws or face denial of recognition by other jurisdictions wrongfully usurps legislative authority and autonomy.

No kidding! So what else is new?

While some state lawmakers have protested in the past, having such a prominent local pushing back against NAIC's decade-old program to establish nationwide regulatory benchmarks without involving Uncle Sam is significant.

As reported by our own Steven Tuckey (click here for the full story), Rep. Kennedy told regulators during the NAICs Accreditation Committee meeting that expanding the program threatens state legislative authority.

He cited the Insurance Receivership Model Act and the Sarbanes-Oxley-like amendments to the Model Audit Rule as examples of what he characterized as controversial laws being forced down the throats of states by virtual fiat via an extraterritorial association–the NAIC.

The NAIC is in a tough spot. Critics of state regulation are breathing down their neck, insisting that only the feds can coherently oversee insurance on a national basis. The main complaint over the years has been that lack of uniformity Balkanizes insurance regulation–raising costs and inhibiting the market. Regulators–through their association, the NAIC–have tried to respond by requiring states to pass a series of standard laws to assure adequate financial oversight.

It takes forever for the NAIC to approve a model law–had this group been in charge of codifying The Ten Commandments, Moses might still be waiting at the mountain for the tablets–but once they are finished, the association takes even more time (about four years) to see how any new model regulation is received among the states before making it an accreditation standard.

But the Model Audit Rule poses some complications that might undermine this acceptance process, thus ticking off Rep. Kennedy and his colleagues.

Accreditation is a crazy way to do national business, especially since the running joke for years is that New York, of all places–the nation's financial center–is not accredited. In fact, New York is the ONLY state that's not accredited! (Although there were rumblings at the NAIC meeting about tossing Florida off the list because of concerns over its recent property insurance reform law.)

The only way around this hodgepodge system was the SMART approach in the last Congress, resurrected on a more limited basis in the current surplus lines and reinsurance regulatory reform bill recently reintroduced. Under those plans, the federal government sets regulatory standards, with the states retaining the authority and responsibility of implementing them. That would standardize regulation nationally, but keep actual regulation local, where locals are more likely to get sympathy and action.

Somehow, however, I don't think state lawmakers in general would rush to support such a Washington-centric proposal. If they think their authority is being usurped by the NAIC, wait until Congress and the Federal Trade Commission starts monkeying around with insurance rules. Would we even need an NCOIL if Congress federalizes insurance regulatory standards?

What do you folks think?