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Federal Insurance Office Asked to Review NAIC

A longtime congressional supporter of federal insurance regulation has asked the director of the Federal Insurance Office (FIO) to review the operations of the National Association of Insurance Commissioners (NAIC)
July 17, 2012

A longtime congressional supporter of federal insurance regulation has asked the director of the Federal Insurance Office (FIO) to review the operations of the National Association of Insurance Commissioners (NAIC).

Perennial opponent of state regulation of insurance Rep. Edward Royce (R-Calif.) sent a letter to FIO Director Michael McRaith, urging him to investigate the NAIC. “It is my hope that your pending FIO report on insurance modernization will kick off a comprehensive discussion of the future of insurance regulation in the U.S.,” wrote Royce. “However, I do not believe that debate can take place without a thorough review of the NAIC and its operations.”

Rep. Royce, who serves on the House Financial Services Committee, has long criticized the state-based system of insurance regulation as antiquated. In previous congresses he has introduced legislation that would allow federal rather than state regulation of insurers. In February, Royce sent a letter to the NAIC, asking its leaders to define what the organization is, what function it serves and whether it is acting as a regulatory body. The NAIC responded to that letter on March 21, arguing it is “an association of elected and appointed state regulatory officials charged with regulating the insurance industry under state law” and does not serve a regulatory function.

What It Means to Agents: While it might be tempting to dismiss Rep. Royce as a gadfly, that would be a mistake. He has been the lead congressional advocate for federal insurance regulation for many years. It was Royce along with former Rep. Melissa Bean (D-Ill.) who concocted the so-called “optional” federal charter (OFC) for insurers and producers. Fortunately, Congress has never displayed an appetite for an OFC, or for creating a big new federal insurance bureaucracy. However, it did create the FIO and while agents, working with the NAIC, rolled back an 11th hour attempt to give the FIO regulatory powers, the FIO has since been making noises indicating it may try to expand its activities.

We are hopeful that FIO Director McRaith will decline Rep. Royce’s offer to start a war with the NAIC.

For the record: PIA strongly opposes federal regulation of insurance and supports our national state-based system of regulation by our state insurance departments. Federal insurance regulation would adversely affect the soundness of insurance markets, restrict the availability of insurance products and undermine successful consumer protections. Federal regulation would confer an unfair advantage, tilting the playing field to a handful of mega-insurance firms and away from state and regional carriers, and the independent agents who represent them.

The insurance industry weathered the economic downturn that began in 2007 largely because it is prudently regulated by the states, in contrast to the banking and securities sectors, which were left largely unprotected by lax federal oversight. State regulation worked well and federal regulation failed – which is an excellent reason to preserve, not undermine, state insurance regulation.

Read the full article on FIO reviewing NAIC: FIO Asked to Review NAIC (Business Insurance 7/12/2012)

See PIA's comments on regulatory modernization and FIO: PIA Files Comments with U.S. Treasury on Regulatory Modernization (PIA 12/20/2011)
http://pianet.com/issues-of-focus/modernization/2011/12-20-11-10