In the wake of the seismic 2010 mid-term elections, market-watchers of the insurance regulatory landscape will be keeping tabs as much on developments in Kansas City and New York as they will in Washington. For it is in all three cities that the National Association of Insurance Commissioners does business.
Carriers, broker-dealers, agents and advisors in the multi-billion dollar life insurance arena would be well-advised to take notice. The NAIC, an organization composed of the chief insurance regulatory officials of the 50 states, the District of Columbia and five U.S. territories, has been a chief catalyst behind sweeping regulatory changes impacting the industry.
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Through its development of model laws and rules for the jurisdictions it oversees, the NAIC, say experts, is helping to guide state insurance regulation touching on such diverse areas as product suitability, financial regulation, healthcare costs and market conduct. The NAIC's influence extends also to climate change, consumer education, solvency modernization and technologies for processing forms and filing fees.
To carry out its overriding objectives–protecting consumers and maintaining the financial stability of the insurance industry–the NAIC leverages formidable resources: a $70 million budget; a 400+ employee staff that provides financial, actuarial, legal, market conduct economic expertise; and extensive systems linking the nation's insurance departments.
"The NAIC tackles an immense number of issues–many not of their own making," says William Woodyward III, an attorney at Mitchell, Williams, Selig, Gates & Woodyward PLLC, Little Rock, Ark. "And, by and large, I think they're doing a pretty good job of it."
That view is representative of the NAIC-watchers interviewed by NU for this article: all former insurance commissioners who currently represent different sectors of the industry before the NAIC. But while they commend the organization's growing clout and effectiveness, these now independent observers also see an imperfect process by which the association arrives at model legislation. Topping the list of complaints: the process is not sufficiently open.
Smoked Glass
Among the critics is Jim Atterholt, the chair of the Indiana Utility Regulatory Commission, Indianapolis, and a former Indiana insurance commissioner. While acknowledging that transparency was "getting better" during the close of his term, Atterholt says that too many of the NAIC's past meetings were unnecessarily secretive.
"Many industry trade associations were extremely frustrated by this," he says. "They would receive little or no notice of meetings, be closed off from certain stages, not be allowed onto certain conference calls or be denied access to key documents. When you alienate constituency groups through such secrecy, getting bills passed at the state level becomes more difficult." 
A recent focus of critics was the NAIC Executive Committee's adoption on August 17 of the Medical Loss Ratio (MLR) Blanks Proposal to implement a provision of the Patient Protection and Affordable Care Act. Arc Monroe, who like Woodyard is an attorney at Mitchell Williams and a former Arkansas insurance commissioner, says that industry and consumer reps were allowed an adequate hearing on proposed MLR ratios early during the public comment period but were not given access during critical concluding meetings.
"When you're talking about an issue that affects an entire industry–in this case how to calculate medical loss ratio–then industry players should be involved in the process all the way through. We were cut out at the conclusion and only heard about what was going on second-hand."
In a written response to NU, NAIC President-elect and Iowa Commissioner Susan Voss disputes this charge. The model law development process, she says, is "open and transparent" and allows for interested parties to offer input during the development and approval phases, ensuring a "thorough and open debate."
Underscoring her point, she cites statistics attesting to the association's inclusiveness in the health care reform debate: more than 280 open meetings and conference calls; 400-plus comments submitted by regulators, consumer advocates and interested parties; and 7,665 conference call participants.
"We understand that the final MLR regulation did not include everything interested parties wanted," she says. "Criticizing the process is sometimes a predictable move when this happens."
We are very proud of the work the NAIC and all of the members accomplished in adopting the final regulation," she adds. "Throughout the process, we invited and welcomed input from the industry and consumers. We stand by the results."
Still, even strong proponents of the process say there is room for improvement. Thomas Hampton, a former D.C. insurance commissioner and a senior advisor for the insurance regulatory practice at SNR Denton, Washington, says the NAIC should seek to limit company-specific discussions so as to make meetings more accessible. The NAIC could also polish information communicated to the public to make issues before the commissioners easier to follow.
Commenting on this criticism, NAIC's Voss acknowledged that insurance regulation can be complex and technical and that "not all parties wishing to participate in the Model Law process have the same level of technical experience."
mity" among members who have multiple constituencies, are divided by political philosophy and party, and who bring to their positions widely varying levels of expertise. But Hampton says that one's background in the insurance industry is not a reliable indicator of how effective a commissioner will be on joining the NAIC.
