Duck Test Offends NAIC|
Years of acting like a business tags NAIC with trade association label
By Hennosy, Kevin P
By Proquest LLC
May 2, 2012
The National Association of Insurance Commissioners (NAIC), which informed observers recognize as The Old Gray Mare of Insurance Public Policy, is facing identity issues.
The NAIC will convene March 3 thru 6 of 2012 in New Orleans - a city that has a long tradition of masking as in wearing a mask to hide the recognizable features of ones-own face. Masking often allows participants to engage in acts or exhibitions that they would not usually take part in if their true identity was recognizable.
As noted in this column in the December issue, in legislative testimony and other communications, the NAIC describes itself as "the U.S. standard-setting and regulatory support" body. To anyone familiar with the insurance public policy process, applying the term "standard-setting" to the NAIC triggers open laughter. Nevertheless, the chipper public relations juggernaut that the NAIC leadership believes itself to be is doing everything it can to mask its true nature.
The term "standard" is difficult to apply to the crazy quilt of parochial public policy which serves as the insurance regulatory framework in the United States. A standard usually refers to a norm or requirement, and there are countless examples of NAIC representatives arguing against the "one size fits all" approach to policy formation. As such, the NAIC serves as an echo chamber for parochial preference much like "
The term "standard-setting" communicates the authority to enforce consistency, if not uniformity. At the very least, setting standards requires a level of influence or respect to establish a least common denominator in public policy.
The NAIC can be loosely described as generating standards in three areas: 1)
In each of these cases, the NAIC wields extensive authority to create uniform policy frameworks- rather than uniform standards. The application of the term "standard" is most accurately applied to the area of
With regard to the financial statement and the codified accounting rules, neither body of work is streamlined enough to merit the term "standard." The annual financial statement was the first project addressed by the NAIC in 1871. Since that time, the reporting framework has established a general level of consistency. Nevertheless, the multiple reporting forms, alternative interrogatories and state supplemental rules make this work product more of a framework than a set of standards. The accounting system is anything but standardized: a Christmas tree festooned with parochial ornaments. Even the NAIC's Financial Regulation
Standards and Accreditation Program (FRSAP) cannot be viewed as a standards-setting activity. While 20 years ago, the NAIC leaders under pressure from powerful members of
In the 1990s, NAIC spokesperson
The NAIC lacks the public authority to set standards because the association is not subject to public accountability. No elected state or federal regulatory body provides public interest-oriented oversight to the NAIC.
Instead, the NAIC calls its docile commercial interaction with insurance trade associations and individual insurance companies "public accountability." In terms of
The political accountability of the NAIC to the industry lobby is indisputable. NAIC model laws, model regulations and guidelines-or standards- are not implemented in the states without the lobbying support of insurance industry lobbyists. So the insurance lobby shapes the NAIC "standard" and then has a chance to alter or kill it at the state level.
Because of the NAIC's inability to establish the content of its policy-oriented work products or how its work products are used, it is difficult to call those products "standards" or call the NAIC a standards-setting organization.
Three weeks after Rough Notes first called attention to the NAIC's neo-nomenclature, The National Underwriters' LifeHealthPro published a story by
Apparently this appellation really got under the skin of the association leadership. On
The [NAIC] is the U.S. standard- setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the
If it quacks like a duck
The NAIC's identity issues stem from decades of efforts to avoid paying federal, state or local taxes, and dodging any semblance of public oversight.
From 1871 until the 1940s, the NAIC operated as an unorganized convention of state officials funded by the largess of insurance industry interests. In the late 1940s, and again in the mid-1950s, the NAIC solicited two opinion letters from the
In the early mid-1980s, the still unincorporated NAIC secured another
This did not mean that the NAIC ceased using the "instrumentality of the states" opinion letter from the 1950s. The association used both letters depending on which one served its purposes.
In 1989, the NAIC secured a third
A decade later, then NAIC Executive Vice President
The NAIC leadership rejected the "instrumentality of the states" concept. Opponents of this viewpoint argued that if the NAIC was tied to the states organizationally, it could be subject to Freedom of Information Act and Sunshine Requests from any member jurisdiction. The NAIC has too many secrets to survive in that kind of sunlight.
The option of organizing as a trade association under Section 501c(6) of the Internal Revenue Code did receive consideration. Progressive commissioners cringed at the thought of public service activity in insurance regulation being classified a "trade."
Less altruistic commissioners worried that as a trade association, the NAIC might fall under the jurisdiction of federal antitrust law. The association's regulatory and moneymaking activities in data collection and producer licensing could be vulnerable to charges of anti-competitive behavior.
Ultimately, the NAIC leadership decided to incorporate for the first time under the notoriously weak corporate registration rules in
If the NAIC does not want to be seen as a trade association, it needs to stop acting like one-and then submit to the public accountability necessary to legally serve a public role. At present, the NAIC holds neither the gravitas nor the authority to be a "standards setting" organization.
Since the mid-1990s, when
If this commercial drive and devotion to insurance carriers were ever removed from the NAIC, the association could serve a positive role-as it has in brief spasms through its long history with the help of aggressive congressional oversight.
As things stand today, the NAIC cannot serve a regulatory (i.e., standards-setting) role. The
At the time the
That means you, NAIC.
Some would say this would be an unconstitutional attempt by the federal government to control state governments; however, this contention is not so clear when one considers that constitutional jurisdiction over insurance regulation rests with
If federal incorporation is not applied to the NAIC, then it must act within the limits afforded to non-governmental bodies; therefore, it cannot set standards.
Neither is the NAIC a trade association, because insurance regulation is not a trade-even if
Without federal action to make NAIC a public body, it should operate as a research and education organization under Section 501c(3). In other words, NAIC should conduct research resulting in regulatory policy development. (I would use the term "Think Tank" but after watching the NAIC leadership over the past 15 years, I just cannot bring myself to do it.)
However, as a 501c(3) non profit, the NAIC should quit flouting the law and file the financial disclosures contained in
If the NAIC does not want to be seen as a trade association, it needs to stop acting like one-and then submit to the public accountability necessary to legally serve a public role.
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