Could The NAIC Be Federally Chartered?

Now that state regulators are warming up to the idea of establishing a federal Office of Insurance Information within the Treasury Department, designed to keep the executive branch informed and coordinate international trade issues, why not just appoint the National Association of Insurance Commissioners to do the job?

Indeed, rather than waste time and money creating a new federal bureaucracy, recruiting qualified staff and establishing a working relationship with state insurance departments, wouldn't it make more sense to simply tap the NAIC to fill the role envisioned in HR 5840–the Insurance Information Act?

Congress could grant the NAIC a federal charter (wouldn't THAT be ironic!), outlining their powers and responsibilities to coordinate national insurance policy and work with Uncle Sam on global trade and regulatory issues.

After all, the NAIC already knows the drill! They have a standard operating procedure to coordinate national regulatory policy, create model laws and deal with multinational issues. They have the people, the expertise and the infrastructure to hit the ground running.

Besides, if Congress decides to reinvent the wheel with its Office of Insurance Information, a clash is inevitable with the NAIC (despite the fact that, as part of the legislation, the NAIC will play a primary role in an advisory group set up to work with the new federal agency). Turf battles are also likely with individual state insurance departments.

Indeed, bad feelings would probably be generated right away, as it's likely the new federal agency will have to strip key personnel from the NAIC and state insurance departments to fill out its own staff. (If they don't follow that path, it means they'll be hiring people not necessarily familiar with insurance regulation, making the transition that much more difficult for everyone.)

Empowering the NAIC to act as the federal government's official liaison with state insurance departments might also eliminate many of the problems plaguing state regulation, if the federal appointment would increase the association's leverage in getting model laws widely approved.

This might also head off the need for an optional federal charter down the road, if Congress approves companion legislation setting up a national licensing system for insurers and intermediaries, along with its bill to set standards for oversight of surplus lines and reinsurance.

There you go! Problem solved!

Well, not so fast, some will say!

For one, critics will contend, the NAIC currently does a lousy job keeping state regulators on the same page. In addition, its policy formulation process is glacial, and its bureaucratic infrastructure Byzantine.

At a hearing earlier this week on HR 5840 before the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises (I say pass a bill calling for shorter subcommittee names!)–during which the NAIC voiced its qualified support for the bill (click here for the full story), objections to having the NAIC as a key player at the new federal office were raised by state legislators.

Rhode Island State Representative Brian Kennedy, D-Hopkinton, testifying on behalf of the National Conference of Insurance Legislators, said that while acknowledging the NAIC is a repository for insurance information, NCOIL believes that giving such a primary role to the NAIC in the OII Advisory Group allows the tail to wag the dog.

Mr. Kennedy, who is NCOIL's president, also quoted the words of past NAIC president, Alabama Commissioner Walter Bell, in noting that the NAIC is not a governmental body and has no regulatory authority.

Should the bill be enacted as drafted, he told the committee, this would be a dramatic enhancement of the authority for this nongovernmental entity known as the NAIC, which comes at the expense of the state officials to whom they are accountable.

These are all good points, but before rushing off to create an entirely new entity, working through a reformed and revitalized NAIC is an idea worth exploring.

What do you folks think?