No More Blinders
The NAIC begins to acknowledge
federal action is inevitable, and they want a seat at the
Scott Sinder and John Fielding
The insurance commissioners met again—in beautiful and
expensive San Francisco again—and talked producer
licensing, surplus lines, and consumer protection. Again. The
most interesting action at the NAIC’s Summer National
Meeting in June occurred behind closed doors. The issue was
Congress and how the NAIC should engage the federal government
on regulatory reform issues.
There was no public discussion or announcement of an NAIC
congressional “plan” or strategy. While there was
plenty of gossip, we don’t know what happened in the
private commissioner meetings, so evidence of the
regulators’ intentions will have to be gleaned through
This is an important issue for Council members because,
clearly, when the NAIC acts—or doesn’t—it has
an impact on the viability of legislation. At the very least,
regulatory skepticism can cause Congress to delay action on
bills that otherwise might move more quickly.
In the past few months, the NAIC has shown a new willingness
to work with Congress on regulatory reform issues—in
contrast to the “just say no” approach of the past.
Recently, regulators have even acknowledged the benefits of
congressional action and have begun engaging Congress on some
issues. We hope all the talk in San Francisco spurs on those
efforts. The gossip was that the regulators were divided on
this approach. I hope not. Constructive engagement by
commissioners with Congress can be good for them and good for
the industry that they hope to continue regulating.
I don’t believe we will ever see state regulators
support some of the issues The Council champions on Capitol
Hill. They will never look kindly on the optional federal
charter proposal. But the commissioners know they need help to
get all of the states on board for reform efforts that they do
support. That reform, whether self-initiated or through
congressional fiat, is essential if the states want to retain
regulatory authority over insurance.
Currently, the focus is on two bills: The Non-admitted and
Reinsurance Reform Act (the NRRA) and the so-called
“NARAB II” bill.
NRRA would streamline the regulatory process for surplus
lines and reinsurance. The regulators have indicated that they
generally support the surplus lines provisions of the bill.
They know surplus lines regulation is a mess and that the
self-interest of individual states has prevented the regulators
from agreeing to streamline the process. They see the NRRA as a
way to force the states to get their act together, realizing,
no doubt, that, unless they do, the calls for federal
regulation will continue to grow louder. To that end, the NAIC
is currently working with NRRA Senate sponsors to make changes
that commissioners believe are necessary to maintain their
consumer protection authority. The Council much prefers this
constructive approach to their defensive approach of years
The same logic applies to the NARAB II. Although regulators
don’t support the bill, they support the core concept of
uniform producer licensing requirements in every state. They
appear to be getting more comfortable with the notion that they
will need congressional action to get there. Like surplus
lines, there is no way to get comprehensive licensure reform in
every state without a congressional mandate. Even the most
vocal states’ rights supporters among the commissioners
know this, and we hope the regulators’
“discussions” in San Francisco do not have the
effect of killing this new effort.
Prior to the San Francisco meeting, there was talk that,
although the NAIC opposes NARAB II, members would propose
legislation to mandate uniform and reciprocal laws in every
state within three years. This would be huge progress over the
current situation and could produce results faster and easier
than the proposed NARAB II bill. But it won’t happen if
the naysayers win the day.
It’s easy to blame commissioners for moving too
slowly—or not at all—on issues we believe are
important. (The acronym NAIC could stand for No Action Is
Contemplated.) Although historically there has been plenty of
foot-dragging, regulators have had plenty of company. Indeed,
in many instances, the regulators’ efforts at reform have
failed because of intransigent state legislators and political
pressure from local trade associations more concerned about
turf protection than efficient, sensible regulation. There is
an opportunity for Council members to help here. To counter
local protectionist efforts, you can lobby not only your state
regulator, but your state legislators, to act on issues such as
surplus lines and producer licensing reform.
In the end, of course, it will require congressional action
to close the deal on comprehensive reform, and we hope the
regulators continue to engage constructively so they will have
a seat at the table. In return, we should engage with our home
state legislators and regulators and support positive changes
at the state level.
Sinder, a partner at Steptoe & Johnson, is CIAB General
Fielding is of counsel at Steptoe & Johnson.