Mr. Chairman, members of the committee, the National Association of Mutual Insurance
Companies (NAMIC) is p...
In 2002, NAMIC released a public policy paper articulating our argument against federal
regulation of insurance. Entitle...
creating an expensive and inefficient government program. In addition, each state has its
own unique tort laws that sign...
The clear advantage to consumers in the state system is accessibility. It is easier for an
insurance consumer to deal wi...
restrictively regulated states in the nation, have begun to overhaul their public policies
regarding rate regulation in ...
jurisdictions. The states should now consider draft language so future amendments to the
UCAA can be adopted without see...
absence of provisions prohibiting frivolous or malicious objections. While consumers do
not want to pay higher insurance...
that repayment will come from the guaranty fund.
Suspect uniformity. One of the few advantages that could potentially be...
The first decision by the Supreme Court of the United States on state versus federal
power to regulate insurance was Pau...
While this particular piece of legislation appears to have worked well in protecting
citizens from purchasing unnecessa...
In the final analysis, before Congress intercedes, state legislative action must be the focus
of modernization initiati...
NCOIL. The National Council of Insurance Legislator...
NCSL. The largest state legislative organization is the National Conference of State
Legislatures, formed in 1975. The ...
When we first articulated these concerns, some argued that they were only theoretical.
However, with the introduction o...
of 15


Published on: Mar 3, 2016

Transcripts - NAMICCongressionalTestimony2003

  • 2. 1 INTRODUCTION Mr. Chairman, members of the committee, the National Association of Mutual Insurance Companies (NAMIC) is pleased to submit this statement for your consideration on the matter of federal involvement in the regulation of insurance. NAMIC is the nation’s largest property/casualty insurance trade association with 1,350 members that underwrite more than 40 percent of the p/c insurance premium written in the United States. NAMIC’s membership includes 4 of the 7 largest p/c carriers, every size regional and national insurer and hundreds of farm mutual insurance companies. As you may know, the first successful insurance company formed in the American colonies was actually a mutual: The Philadelphia Contributionship for the Insurance of Houses from Loss by Fire. It was created in 1752 after Benjamin Franklin and a group of prominent Philadelphia citizens came together to help insure their properties from fire loss. In the early days of our nation, most insurance companies followed the Contributionship model; that is, groups of neighbors or business owners formed mutual insurance companies to help each other avoid the certain financial ruin that would befall them if their properties or businesses were destroyed by catastrophic events. While we honor our history, today’s mutual insurance industry also has a clear vision of the future. Insurance regulation should remain close to those who undertand the needs and preferences of their constitutencies. The states should continue to regulate the business of insurance however not without significant reforms to incorporate modern day efficiencies Artificial barriers to competition and regulations that vary from state to state without serving any public purpose make it more difficult than necessary to do business n a regional or national basis. NAMIC member companies believe that a reformed system of state insurance regulation is superior to an unproven system of federal regulation. Achieving reform of state insurance regulation is our highest policy priority, and every year, we devote a larger percentage of our resources to achieving this objective. Given the profile of our membership, NAMIC’s position is representative of a dynamic cross section of the property/casualty insurance industry. Because of our official position, NAMIC welcomes this hearing. Not only are we confident that this committee will reach the same judgment as our member companies, we believe that any indication by the Congress of an interest in insurance regulation will motivate state policymakers to act. THE ROAD TO REFORM FROM THE NAMIC PERSPECTIVE
  • 3. 2 In 2002, NAMIC released a public policy paper articulating our argument against federal regulation of insurance. Entitled Regulation of Property/Casualty Insurance: The Road to Reform, it is the culmination of years of member study. Our member companies began their consideration with an open mind, but as work progressed it became clear that the best option for consumers and the insurance industry is to reform the state system rather than coming to Congress for a solution that promises to be worse than the original problem. The insurance industry is at a crossroads. Many in our industry already have chosen the path of reform that runs through Washington. They believe the state system of regulation is irreparably broken and only can be fixed by Congressional action. Others take a wait and see approach to reforming the state system. Indeed, they are engaging in efforts of reform, but with one eye on the clock, almost waiting to jump on the bandwagon making the most progress. Missing from this debate is the point of view that a federal regulator, or even a dual charter, is not in the best interest of the industry or consumers. It is this point NAMIC emphasizes based on the following reasons: Federal Involvement is the Wrong Answer at the Wrong Time In developing our public policy paper, NAMIC identified a series of defects in the rationale for seeking federal involvement in the regulation of insurance. They include: 1. Federal involvement is often used to enact social regulation. Under a federal system, insurance is likely to be treated as another “government entitlement” with all the trappings associated with that term. This would cause serious erosion to the basic principles of risk sharing upon which the industry is built. 2. Asking Congress to intercede is fraught with danger for consumers and industry. Proponents of federal regulation may design their idea of “a perfect system,” but they can neither anticipate nor prevent the imposition of social regulation in exchange for the new regulatory structure. In our judgment, the chances of the “perfect system” going from draft legislation into law are almost nil. 3. A federal or dual charter not only would not reduce regulation, it would add regulatory layers and complexity to the current system. It is by no means certain that a new federal regulator would be the “single” regulator for even the largest property/casualty insurance companies. Dual regulation, proposed by some, would produce an unfair environment for the thousands of smaller companies, and create regulatory competition that often produces poor policy in financial institution regulation. 4. Costs and bureaucracy will increase under a federal framework. Will a federal charter reduce regulatory costs that are indirectly paid by consumers and/or taxpayers, and will it bring about less bureaucracy for companies choosing this option? There is no evidence that a federal insurance regulator is going to depart from the tradition of
  • 4. 3 creating an expensive and inefficient government program. In addition, each state has its own unique tort laws that significantly affect insurance. Because state tort laws do not constitute the regulation of insurance, and have historically been shown great deference by the courts, federally licensed insurers would have to tailor products to accommodate each state’s tort laws. These factors will significantly hamper gaining efficiencies from a federal system. The cost to consumers will inevitably rise as well. Currently, states derive significant income from premium taxes, which exceed the cost of regulation. The cost of a new layer of federal regulation must be accounted for somehow. The necessary funds must either come directly from the federal budget, or from fees assessed to insurers. Since taxes and fees must be passed on to consumers, they will have to pay for two regulatory systems under a dual charter approach, unless the states forego premium tax revenue. 5. When the single national regulator makes a mistake, it has significant economy- wide consequences. When a state regulator makes a mistake, the damage is localized and can be more easily “fixed.” In other words, what if a national regulator gets it wrong? Industry proponents argue that Congressional action could produce a national system resembling the open competition found in Illinois – a regulatory model that NAMIC strongly supports. But what if the system created looks more like highly regulated states? The economic fallout from a strict national regulatory climate would be crippling, and the accountability would be at Congress’ door. 6. The time for further change has not arrived. The new balance necessitated by GLBA is still evolving. It has shown great promise, but requires more time to mature fully. Unlike 1999 when GLBA passed, there is no major impetus, such as convergence of the financial services industry, to further change the balance between federal and state regulation. In times past, momentous change has been the consequence of significant needs or events. No such need exists today. Change without need could destabilize a system that has worked well throughout our nation’s history. State Regulation is More Pro-Consumer From a consumer’s perspective, the state system of regulation has performed admirably. It has proven to be adaptable, accessible, and relatively efficient, with rare insolvencies and no taxpayer bailouts. Proposals for federal and dual charters offer few advantages for consumers, and consumer interests are rarely cited as reasons for changing from the state system. Federal regulation is no better than state regulation in addressing market failures or consumer interests. Regulated industries of all types have had failures at both regulatory levels. Neither can claim immunity from market failure. Additionally, claims that consumers are well served by federal bureaucracies seem dubious.
  • 5. 4 The clear advantage to consumers in the state system is accessibility. It is easier for an insurance consumer to deal with a regulator in their home state than having to contact a regional federal office to intervene in disputes. A Reformed System of State Insurance Regulation is Superior Changes must be made to create a reformed, competitive and consistent system that will benefit both consumers and industry. NAMIC is working to achieve four specific areas for state reform: RATE REGULATION States should eliminate the approval process for pricing insurance products. NAMIC has endorsed the NCOIL Property/Casualty Modernization Act approved in 2001. The model lays out a “use and file” regime for personal lines in competitive markets and a “no file” standard for commercial lines. There is unanimous support among the industry trades for this language. Still, this is a potentially controversial issue among some state legislators. However, rate modernization not only is not radical, it is not new. Two brief examples speak to its success as public policy: • In 1969, the Illinois legislature repealed outright the prior approval law that was put in place following passage of McCarran-Ferguson in 1945. Property/casualty rates in Illinois remain unregulated today. Several vital signs demonstrate that this policy works well. Today, consumers enjoy stable rates, ranking in the middle of all states in average personal expenditures because the Illinois market attracts the largest share of all private passenger auto and homeowner insurers in the nation. Low residual markets indicate affordability and availability. These positive signs are all the more remarkable when you consider that Illinois includes the third largest urban area in the United States, and two-thirds of the state’s residents live in the Chicago area. With over three decades of success and no legislative proposals to reinstitute regulation, there can be no argument that this structure is well tested and beneficial to everyone involved. • The demonstrably negative impact of prior approval on South Carolina’s state auto insurance market prompted the Legislature to act in 1999. Only 78 companies offered policies in the state in 1996 and over 40 percent of all insured drivers were in the assigned risk pool. With the elimination of prior approval in favor of a flex rating system, 105 new companies are in the market, rates are lower and residual market participants, once numbering over a million, have declined to 58,000. Recent progress demonstrates that states are beginning to take responsibility for the negative results of their regulatory policies. New Jersey and Louisiana, two of the most
  • 6. 5 restrictively regulated states in the nation, have begun to overhaul their public policies regarding rate regulation in the face of shrinking pools of insurance providers. As has been often and loudly stated, the product approval process is especially challenging for the life industry because of direct competition with banks in certain financial services. NAMIC agrees that the life industry and its consumers would be well served by a streamlined regulatory process and believe the life compact could help address this need. Efforts to create a more competitive marketplace for insurers and consumers alike must not begin and end on the life side of the equation. MARKET SURVEILLANCE States vary widely in how they staff and approach their market surveillance activities. A few states, for example, regularly schedule market conduct exams, regardless of whether problems have been reported with a particular insurer. The open-ended costs of these exams (salaries, meals and lodging) are charged to the company under examination. A lack of uniformity and coordination among states in performing exams often results in duplicative and costly processes, especially for multi-state insurers, who are most likely to be targeted for review. As state insurance departments spend less time on “front end” regulation (i.e. prior approval), states need to adopt a market regulation program that relies on analysis of existing and available market data to reveal performance deviations rather than largely open-ended market conduct examinations relied upon today. With this approach, regulators can focus their limited resources on companies that fall outside a predetermined set of standards developed from data analysis. Any new market regulation process must be proportional, allowing insurers to mitigate complaints or market inconsistencies before being subjected to more severe actions like a market conduct exam, administrative penalty or fine. SOLVENCY MONITORING State regulators have adopted several solvency tools over the past decade to strengthen oversight of the insurance industry. While the industry has supported improvements in solvency monitoring, there remains a high degree of variation among states in how financial exams are conducted. NAMIC has helped produce an industry white paper that identifies three primary recommendations to facilitate discussion of the examination system by all stakeholders. Recommendations under consideration by the NAIC center on controlling expenses, integration of private CPA auditor work and risk-oriented financial reporting. COMPANY LICENSING States, working through the NAIC, have made some progress in the past few years in bringing more uniformity to the company licensing process. One outcome is the Uniform Certificate of Authority Application (UCAA), which is now used in all insurance
  • 7. 6 jurisdictions. The states should now consider draft language so future amendments to the UCAA can be adopted without seeking legislative approval each time. However, the key to more uniformity of this process is ensuring that state deviations are reduced or eliminated. RESPONSE TO S. 1373: THE INSURANCE CONSUMER PROTECTION ACT One bill the Senate is considering is S. 1373, The Insurance Consumer Protection Act. In our analysis, the legislation brings to life many of the concerns we have about federal regulation. Government approval of insurance prices. S. 1373 is an anti-competition bill in that it would require prior approval for all rates by a federal regulator. Not only is competition a much better regulator of rates than government, regulators in states with prior approval are routinely backlogged in their reviews. One super-agency is unlikely to be capable of staying current with rate applications. The result will be the imposition of needless bureaucracy and less efficiency with national implications. Massachusetts’ repressive auto rating structure provides living proof that restrictive regulation is unnecessary and harmful to insurers and consumers alike. In Massachusetts, the Insurance Commissioner is charged with setting every aspect of the auto insurance rate, even including the amount of money that an insurer may allot to expenses. This rate applies to all companies doing business in Massachusetts, which gives large national insurers who enjoy economies of scale a distinct advantage over smaller insurers. Despite this advantage, these insurers avoid this state. Massachusetts’ auto insurance market is in a severe state of decline. Currently, there are less than 20 companies writing auto insurance in the state, while NAIC statistics show that their auto insurance rates are some of the most expensive in the nation. On May 16, 2003, the Massachusetts Commissioner of Insurance held an annual hearing to determine whether competition existed in their auto insurance market. Had she found in the affirmative, she would not be obligated by state law to set rates as described above. This hearing, which was widely attended by the insurance industry, proved that regional and national insurers would like to re-enter this market. However, they will not do so until this punitive regulatory environment is reformed – a change that has been made by other states. The number of insurers who compete in the competitive Illinois market is at least 6 times the number who seek to survive in Massachusetts. In today’s world, harmful regulatory structure has an impact beyond state borders. Many regional and national companies have simply decided that it is too costly to contend with this regulatory relic, so they avoid the state altogether, denying choices to consumers and removing incentives for companies to lower rates. True reform will result in the elimination of unnecessary regulatory burdens. This proposal promises to slow regulatory processes even more through a provision that would allow anyone to challenge a rate filing. This is a serious flaw, particularly in the
  • 8. 7 absence of provisions prohibiting frivolous or malicious objections. While consumers do not want to pay higher insurance rates, they also want to their insurance carrier to be solvent. Ideally, premium decisions should be based on adequacy of the rate and competitive pressure – not political pressure. Subjecting the critical calculation of ratemaking to a political process, as this provision would, will harm not help consumers by creating a supercharged environment in which defending rates that are actuarially sound will be needlessly difficult. This is the kind of “social regulation” that will ultimately harm this industry’s ability to charge a price based on risk. Increased market conduct burdens. This proposal dramatically increases the use of market conduct examinations. While regulators and industry agree that this can be a useful regulatory tool, the way in which exams are triggered and conducted is already under an extraordinary level of scrutiny. Currently, the states that conduct these exams do so on a scheduled basis – regardless of the company. The result is that a company on solid footing may face an intensive review, while the bad actor next door knows that they won’t be subject to an exam for another 3 or 4 years. Even when bad actors are revealed, regulatory resources will be spread so thin that dealing aggressively with the problem may not be possible. This proposal would radically increase the indiscriminate use of this tool at a time when there is a growing consensus that a more thoughtful, and perhaps targeted, approach is more desirable. A far more constructive use of regulatory resources is to focus on identifying and intervening in problem situations. Systems to facilitate this more effective form of regulation are currently under consideration. Diverting resources away from identifying and addressing problems in their earliest possible phases can only harm the cause of responsible regulation. Not only would this result in needless use of public and private resources, but also it would be a mistake felt nationally. Destabilized state guaranty funds. State guaranty funds are one of this industry’s greatest consumer protection stories. Their creation and continued success provides further proof of this industry’s ability to adapt to the needs of the times. By removing all federally licensed insurers from state guaranty funds, this proposal would leave the viability of the state guaranty funds in question. It is unclear whether the remaining local companies in each state would have sufficient resources to protect consumers whose insurers become insolvent. Once again, this mistake will result in needless bureaucratic duplication, and will be felt on a national basis. A related and troubling aspect of this proposed legislation would create a federal guaranty fund system, and protect its officers from personal responsibility, “for any act or omission”. This provision is particularly curious in light of the heightened corporate governance provisions in this Act. While CEOs of insurance companies would be required to personally attest to portions of their annual reports, guaranty fund officials are given civil immunity for “any act or omission”. This inequity is compounded by what can only be described as the Act’s victim-pays provision. If insurers are victims of official misconduct, they will be forced to fund their own compensation for damages, in
  • 9. 8 that repayment will come from the guaranty fund. Suspect uniformity. One of the few advantages that could potentially be offered by federal regulation is a degree of uniformity by eliminating unnecessary regulation. However, this proposed legislation would not provide uniformity because it subjects federally licensed insurers to state regulations that are more stringent than the federal standards. Not all differences between the states are unnecessary, but reflect unique conditions in each state. For instance, the states are prone to a diverse series of risks that inevitably result in different regulatory requirements. Those risks include: earthquakes, floods, draught, forest fires, hail, tornadoes and hurricanes. The p/c industry provides insurance for natural disasters, and our products must vary to address the particular situation in each region. When it comes to these kinds of differences, one size does not fit all, and a government-sponsored incentive in one area would make no sense in another. These variations will continue regardless of the regulatory structure. Tort laws will also continue to vary by state. Because tort laws do not appear to constitute the regulation of insurance, and have historically been shown deference by the US Supreme Court, a federal insurance regulator would not have the authority to create tort uniformity. Even the sponsor of S. 1373 recognizes the primacy of state law, in the aforementioned provision that subjects federally regulated insurers to state standards that are more restrictive than the federal standards, unless the state standard prohibits something authorized by the federal law. New bureaucracy. It creates a new regulatory bureaucracy, while leaving state systems and premium taxes in place. It is commendable that this proposal does not seek to deny states much needed premium tax revenues in these difficult fiscal times. However, the result will be that policyholders would have to fund two regulatory structures. This is particularly troubling in light of the fact that state systems have a proven ability to adapt to the needs of the times. THE ROLE OF THE NAIC IN REGULATORY REFORM Calls for reform of the state insurance regulatory system have been heard for years but little substantive reform, other than the NAIC financial accreditation program, has occurred. Frustrations have grown as the marketplace becomes more competitive and more global. Complicating matters further is that the NAIC is often --wrongly in our view -- held to account for implementation of sweeping reform. The NAIC is just one piece of the reform puzzle. Public policies defining reform must be established by state legislatures. Yet the NAIC has been looked to for years by Congress and others as the source of regulatory reform.
  • 10. 9 The first decision by the Supreme Court of the United States on state versus federal power to regulate insurance was Paul v. Virginia (1869). The Court held that delivery of an insurance policy in Virginia issued by a New York company was not interstate commerce. The Court employed a narrow definition of “commerce”. As a mere contract rather than a physical good or commodity, Congress was not empowered to regulate it. Two years after Paul, the National Convention of Insurance Commissioners (later the NAIC) convened for the first time to help its member regulators oversee companies doing business in one state. Uniformity in legislation affecting insurance and departmental rulings was high on the new organization’s list of objectives. In 1944, the Supreme Court overturned Paul, redefining insurance as interstate commerce and triggering passage of the McCarran-Ferguson Act by Congress the following year. Under McCarran, states can preempt federal anti-trust laws by regulating the business of insurance. The industry and the NAIC were given three years by Congress to devise a regulatory framework that could be put into effect across the country to halt enforcement of federal anti-trust and discrimination acts. The NAIC responded by developing model acts and regulations related to insurance rates and policy form language that were quickly enacted by the states. This set of circumstances gave birth to the present regime of prior approval for property-casualty products now operational in more than half the states and opposed by NAMIC today. In the late 1980s, the House Energy and Commerce Committee’s persistence in challenging regulators was instrumental in the NAIC adopting its Financial Regulation Standards and Accreditation Program in 1989. The program consisted of a set of financial regulation standards for state insurance departments, which identified model laws and regulations, and regulatory, personnel and organizational processes and procedures necessary for effective solvency regulation. Nearly all the states, with the help of their legislatures, subsequently adopted the accreditation standards, but this has not stopped Congress and others from continuing to ask probing questions about the continued viability of the program. As recently as August 2001, a report prepared by the General Accounting Office outlined “gaps and weaknesses” in the accreditation program in response to the Martin Frankel fraud scandal. This, in turn, has caused the NAIC to re-evaluate certain aspects of its accreditation standards. Clearly, this type of oversight of state insurance regulation seems appropriate for Congress to continue to pursue. It is also important here to mention another “role” that Congress has played with respect to state insurance regulation in the past decade. In 1992, Congress enacted legislation that had the effect of standardizing the Medicare supplemental insurance policies. While Congress mandated this requirement, it was left to the NAIC and the states to “design” the standardized forms and to implement their use in each state.
  • 11. 10 While this particular piece of legislation appears to have worked well in protecting citizens from purchasing unnecessary multiple Medigap policies, it is not yet clear to us whether this approach would work for other lines of insurance or in possibly bringing more uniformity to certain state regulatory functions. The Gramm-Leach-Bliley Financial Services Modernization Act (GLBA) contained at least two provisions directly affecting state insurance regulation. The first called on state regulators to develop a better system of licensing out-of-state insurance producers, or face a Congressionally mandated entity to perform that function. Regulators responded with a uniform producer licensing model act and two years’ worth of effort enacting it in most state legislatures. The other GLBA provision required insurers to protect the nonpublic personal information of their policyholders. Forty-nine states and the District of Columbia have met the GLBA privacy standards, largely based on the NAIC privacy model. Taking the intent of GLBA one step farther, regulators agreed to a “Statement of Intent” in March 2000 outlining their desire to change the organizational structure of insurance regulation to better address the rapidly evolving changes to the financial services industry. This brief review of the NAIC’s actions over the years naturally leads to the conclusion that the NAIC is the protector of the principles of insurance regulation in general and state regulation in particular and as such it should be the source of comprehensive reform. However, in our judgment this is incongruent with reality. In describing its own work, the NAIC has said that regulators have long realized that diversity and experimentation are strengths of the state system, but they also recognize that the basic legislative structure of insurance regulation requires some degree of uniformity throughout the states. This inherent tension between sovereignty and uniformity in the context of a voluntary organization of mostly appointed state officials with no authority to enact the models they write has produced both large expectations and large disappointments. The NAIC deserves recognition for focusing attention on key marketplace improvements such as speed-to-market and market conduct for which NAMIC member-companies are asking. Out of necessity, much of their work concerns the procedural or functional aspects of regulation. Unfortunately, by themselves, better procedures do not satisfy the deeper needs of the industry. While individual state regulators can recommend standards for reform and raise the profile of important market reform issues, they cannot act alone. Simply put: the NAIC cannot be expected to do what it is not empowered to do, that which is the most pressing task for all of us concerned about the future of the insurance industry: enactment of fundamental public policy reform.
  • 12. 11 In the final analysis, before Congress intercedes, state legislative action must be the focus of modernization initiatives. There are important and effective national organizations prepared to lead reform efforts in the states.
  • 13. 12 THE ROLE OF NATIONAL LEGISLATIVE ORGANIZATIONS IN REGULATORY REFORM NCOIL. The National Council of Insurance Legislators was formed in 1969 to help legislators make informed decisions on insurance issues affecting their constituents and to oppose any encroachments of state authority in regulating insurance. NCOIL members collectively represent residents in states where 90 percent of insurance premium is written each year. In addition to conducting annual meetings/seminars for its members, NCOIL has been instrumental over the years in developing its own set of model laws that have been enacted in several states. These models have addressed issues such as financial information privacy, mental health parity, life settlements, long-term care tax credits, federal choice no-fault, commercial lines deregulation and property/casualty domestic violence. The leadership of NCOIL also has testified at several Congressional hearings in opposition to initiatives that would have created a dual system of insurance regulation, in opposition to Congressional initiatives that would have usurped the existing authority of states to regulate insurance rates, and on the viability of having an interstate compact to govern key aspects of insurance regulation. ALEC. The American Legislative Exchange Council was founded in 1973 by a small group of bipartisan state legislators with a common commitment to the Jeffersonian principles of individual liberty, limited government, federalism, and free markets. Today, ALEC has grown to become the nation’s largest bipartisan individual membership organization of state legislators, with more than 2,400 members in 50 states. ALEC remains committed to preserving the state regulation of insurance and has developed its model Property/Casualty Insurance Modernization Act to facilitate the replacement of outmoded, inefficient insurance regulations with market-based reforms. In addition, ALEC has developed a special project, national in scope, designed to educate state lawmakers about the importance of making insurance regulatory changes that are less intrusive and more uniform in nature, which is one of the primary goals of those clamoring for federal preemption. One of the most exciting aspects of ALEC’s involvement with this issue is its extraordinary record of success in affecting public policy changes in other areas. ALEC, for example, is the preeminent force for state level tort reform efforts facilitated through ALEC’s Disorder in the Court Project. ALEC legislators have introduced more than 100 bills in over two-dozen states. Over 20 of these bills have been enacted. Members are also responsible for passing model pension reform legislation in 13 states over the past two years, a monumental success. This leadership is likely to continue. More than 100 ALEC members hold senior leadership positions in their state legislatures, while hundreds more hold important committee leadership positions.
  • 14. 13 NCSL. The largest state legislative organization is the National Conference of State Legislatures, formed in 1975. The primary component of NCSL's mission is to advise Congress and the Administration as to the effect of federal action on the states. Recently, the organization’s Executive Committee Task Force to Streamline and Simplify Insurance Regulation approved a Statement of Principles to guide state legislatures in the pursuit of regulatory reform for the property and casualty industry. Also approved was an interstate compact that would facilitate the approval of annuity, life insurance and disability income products by a single entity for use in all insurance jurisdictions. For the NCSL to depart from its federal advisory function to make specific state proposals is an extraordinary step. While NCSL has no more power to bind than does the NAIC, there is a fundamental difference in authority. Its members are elected officeholders with obvious influence over the outcome of legislative proposals in the states. CONCLUSION NAMIC joins with our colleagues in asking for fundamental reform of insurance regulation. While we disagree with some on the method to bring this about, we all agree that unnecessary regulatory barriers between the states must be eliminated. True reform must also preserve the meaningful differences between the states. This balance can best be achieved through reforms within the states. History has proven that state insurance regulation can be reformed through emphasis on state legislatures. In taking this stance, we are not relying solely on history. We have cited significant changes that are currently underway: within the states, at NCSL, NCOIL, and ALEC, and at the NAIC. These changes are happening with the cooperation, assistance, and advocacy of the insurance industry. At the same time, we are deeply concerned about calls for federal regulation of insurance. After extensive study, NAMIC has determined that federal regulation of insurance was undesirable because: 1. It is likely that social regulation would be employed, harming the industry’s ability to price risk. 2. There is no guarantee that proven free market reforms would be employed. 3. Any system of dual regulation would add a layer of bureaucracy and cost that would ultimately be paid by policyholders. 4. Regulatory mistakes will not be contained within a single state, but will have an immediate national impact.
  • 15. 14 When we first articulated these concerns, some argued that they were only theoretical. However, with the introduction of S 1373, the Insurance Consumer Protection Act of 2003, many, if not all of our concerns have been justified. The areas for reform have been defined. Now it is up to the states to enact changes in public policy that will make the difference. We urge you to continue your efforts to assure that change takes place in the states. As it has in the past, your interest alone will prompt a renewed resolve on the part of the states. We believe this pressure, given time, will bear fruit. Thank you for your consideration of our comments.

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