State Lawmaker Pans NAIC Outline

News of a discussion among a group of state regulators aimed at creating a National Insurance Supervisory Commission isn't being welcomed by one state legislator.

State Rep. Brian Patrick Kennedy, D-R.I., who is also immediate past president of the National Conference of Insurance Legislators, said he was told of the proposal by the NAIC, and he has "serious concerns about the proposal and would be very reluctant to sponsor or even support it."

"[The proposal] is not a simple expansion of the current IIPRC, but a total integration of all insurance law responsibility to be designated to this new NAIC insurance commission," he said, referring to the Interstate Insurance Product Regulation Commission.

In a proposal document obtained by NU recently, the NISC–a proposed commission of states that would be authorized under federal law to facilitate regulatory uniformity–is said to be premised on the existing IIPRC.

Rep. Kennedy added that he believes state legislators may be giving up their ability to create new insurance laws in their respective states, and may no longer have any role over insurance matters.

"I think that if legislators are going to give up this constitutional authority to create laws, and turn over the responsibility to a new creation of the NAIC, then there will have to be some type of legislative oversight granted to legislators," Rep. Kennedy said.

He also said he believes the NAIC "recognizes the problems with this proposal," as they have not reached out to legislators to discuss the matter since June.

In conversations with commissioners, Rep. Kennedy said he has stated that "if state legislators were going to lose their policy role and allow the insurance regulators to have total control and authority over state insurance law, then the bigger question would become 'what's the lesser of two evils: placing the insurance commissioners in charge of all things insurance or having the federal government take on a role dealing with insurance?' Either way, state legislators would lose their authority to enact insurance laws."

He said he believes the NAIC will lobby legislators during the NAIC's upcoming meeting in Washington, D.C.

"I plan to dig in my heels since I think this proposal would be a complete capitulation of legislative authority in the hands of a department of the executive branch and I would not be in favor of any proposal that takes away legislative authority to make insurance laws," Rep Kennedy stated.

"I recognize that we are looking to create more uniformity in our states, but this proposal is not the answer or even a starting point," he said.

Lawrence H. Mirel, a partner at Washington, D.C.-based Wiley Rein LLP and a former Commissioner of Insurance, Securities and Banking for the District of Columbia, spoke of a separate proposal under consideration that would grant the NAIC itself federal authority, through a bill enacted by Congress, to act as a national regulator for reinsurers. That proposal was discussed on the floor during the NAIC's December 2008 meeting. But he said it has run into complications and "is not going to work."

While the NAIC has tried to deal with problems associated with that measure, circulating drafts of a proposed bill in March and then again in July, Mr. Mirel said "they have to come up with different ideas."

The problem, he noted, has to do with re-defining the NAIC as a regulatory body, since it is a private entity–essentially a trade organization–made up of state regulators. A better solution, he said, would be if regulators could combine an agreement among the states with some form of federal regulatory authority.

The commission proposal discussed at the June meeting would seem to attempt to accomplish that, forming a federally authorized commission that would coordinate with the OII rather than granting regulatory authority to the NAIC.

Francine L. Semaya, chair of New York law firm Nelson Levine deLuca & Horst's Insurance Regulatory and Transactional Practice Group, and Mr. Mirel both said the NAIC is likely considering regulatory landscape changes to show that it can work with the federal government in strengthening state regulation.

"I think the goal [of regulatory proposals] is to show that the state regulators and the NAIC have a complete handle and are capable of regulating effectively on a national and uniform basis," Ms. Semaya said.