NAIC Can't Afford To Alienate Consumers

Rather than be dismissed as part of the problem, the National Association of Insurance Commissioners appears poised to be part of the solution when it comes to regulatory reform, if what we hear from the grapevine is correct. However, did the group make a mistake leaving out a key constituency–consumers–in its recent pow-wow with industry leaders?

The NAIC had a major meeting in D.C. last week to hear from industry associations where they stand on regulatory reform at a time when calls for federal involvement seem to be getting louder and more widespread–most recently from the Bush White House, in the Treasury Department's blueprint for financial services oversight.

As reported exclusively by NU's Dave Postal (click here for the full story), regulators were read the riot act even by some of its staunchest supporters over the years, who are losing patience with the glacial pace of reform.

Repeating assertions made earlier last week in a visit to NU's Hoboken editorial headquarters, David Sampson, president and CEO of the Property Casualty Insurers Association of America, warned it is increasingly likely that Congress will intervene in insurance regulation unless it is persuaded that rapid, visible, meaningful regulatory modernization at the state level is occurring.

The former deputy commerce secretary–one of four insurance group leaders invited to speak at the roundtable–added that he “also shared with them that it is PCIs view states are not making sufficient progress to reform the current regulatory system.

In other words, get moving on substantial reform–both in terms of uniformity and reciprocity of state regulation–or be pushed out of the way by Uncle Sam!

The May 21 meeting, called by the NAIC, was attended by 28 state insurance regulators and 14 representatives of other state regulatory agencies, Mr. Postal reported. On hand to testify were officials from PCI, the National Association of Mutual Insurance Companies, the Independent Insurance Agents and Brokers of America, and the Council of Insurance Agents and Brokers.

It would have been nice if a consumer representative or two had been invited as well. Instead, the NAIC might have undermined its support from consumer groups by not asking for their take in this unusual forum.

Birny Birnbaum, head of the Center for Economic Justice, sent an e-mail of complaint to Kansas Insurance Commissioner Sandy Praeger, NAIC's president, with a copy to NU.

Citing NU's story about the hush-hush May 21 meeting with industry leaders, Mr. Birnbaum said his group was “struck by the absence of any consumer organizations in the list of participants.”

“Given that the NAIC's mantra is that state insurance regulation is all about protecting consumers,” he added, “we ask if you could explain why no consumer representatives were invited to the meeting, and how the NAIC could reasonably get feedback about the prospects of an OFC or the future of insurance regulation without the views of the consumers who would be affected by such legislation.”

While he noted that “we agree with PCI President Sampson that state insurance regulation must modernize,” he added that “we are certain that we disagree about what that means.” For the industry, he contends, modernization means “deregulation and an opaque market and regulatory system in which virtually all industry information is non-public.”

In contrast, for his group, he added, “modernization means state insurance regulators who are better able to identify and stop market problems before the problems harm consumers” as well as “a vibrant data collection and market analysis system, and a more transparent and accountable regulatory structure in which regulators do not routinely jump to jobs with the very entities they once regulated.”

The NAIC has been playing its latest gambit very close to the vest. They haven't even commented publicly on their own meeting.

But the NAIC leadership does appear to be serious about avoiding an OFC, or even the interim Office of Insurance Information proposed under Treasury's plan, which would no doubt be the first step to full-fledged federal oversight.

I have a feeling the NAIC left consumers off the guest list this time around so the meeting did not degenerate into a free-for-all, and to make sure industry officials felt comfortable speaking their minds. The NAIC will need industry support to head off an OFC, and the regulators were eager to hear first-hand where they stand.

The NAIC probably figures there is plenty of time to get the consumer view. Or perhaps they felt they already know where consumers are coming from. After all, Mr. Birnbaum's views, expressed in his e-mail, were no secret or surprise.

Unfortunately, no matter what the explanation, this closed door, by-invitation-only session is a big reason why so many are calling for federal regulation.

The NAIC is an extraordinary organization–and not necessarily in a good way, in that it is beyond government, really accountable to no one, even though it represents public figures protecting the public good. It is neither fish (state regulation) nor fowl (national oversight).

The worst thing the NAIC could do is undermine its credibility with consumer groups by arousing suspicion that it is in cahoots with industry officials who share their preference for local oversight. And that's coming from someone who backs continued state regulation!

What do you folks think???