Daniel Schwarcz
The National Association of Insurance Commissioners' state accreditation program is unconstitutional because it can coerce states to pass laws, and the NAIC itself has an outsize influence on insurance regulation, critics argued Thursday.
Speaking at the Consumer Federation of America's financial services conference in Washington, Daniel Schwarcz, professor of law at the University of Minnesota, argued that the NAIC's state accreditation program is not subject to administrative law, which means the NAIC is not subject to the same laws or procedures that states are.
The NAIC acts as a government entity but has none of the accountability of a government entity, Schwarcz maintains.
"Quite frankly, it's unconstitutional," Schwarcz said.
The NAIC's accreditation program was created to establish and maintain financial regulation standards in each state.
The professor, who teaches insurance law, made a splash when he published a paper earlier this year questioning the NAIC's power with its production of guidance, model laws and manuals that he argued have the force of law because they are incorporated by reference in state insurance codes.
Schwarcz's paper stated: "Because the NAIC is a private entity, it produces these various materials that have the force of law without being bound by any safeguards that ordinarily accompany the production of regulation, whether at the state or federal level. Moreover, the NAIC uses its unique accreditation program to directly pressure state legislatures to delegate this authority to it. This Article argues that this scheme violates basic separation of powers and non-delegation principles embedded in every state Constitution."
While it is up to the states to pass via their own legislatures or enact NAIC-crafted model laws and regulations, Schwarcz focused on the "coercive" nature of the state accreditation model created by the NAIC, which he termed a private entity.
The NAIC 2019 budget, approved on Nov. 18, includes total revenues of $110.7 million and total expenses of $118.8 million.
Eric Cioppa, the incoming NAIC president for 2019 and Maine's superintendent of insurance, stated at the time the budget was released that "officers, members and NAIC staff will ensure the best use of its financial resources and continue prudent financial management, while we ramp up efforts to meet the accelerating pace of innovation and change."
