It’s a fair question, and one I’ve asked myself on a number of occasions. The question keeps coming up, in part, because the NAIC keeps changing its answer.
The National Association of Insurance Commissioners is a 501(c)(3) non-profit corporation that acts as the public policy trade organization of the nation’s state and territorial insurance regulators. It is not an interstate compact, nor does it have any explicit regulatory powers of its own.
In many ways, the NAIC acts much like any other trade association. It looks to promote its members’ interests (opposing federal preemption and encroachments by other regulators or government bodies) before both Congress and international regulatory bodies.
But in other key ways, it differs markedly. For instance, it promulgates model laws and regulations that, in many states, are incorporated into statutory law by “reference”; that is to say, a decision by the NAIC to make changes to an existing model can change public policy in the states automatically. This gives the group the patina of a quasi-regulator, although unlike regulators, the NAIC does not have to comply with open public meetings or freedom of information laws.
The group also leverages the regulatory powers of its members to require the companies they regulate to make filings and submit database filing fees, product filing fees and producer licensing fees that the NAIC then uses to fund its own operations. Moreover, as I’ve laid out previously here, here, here and in the comments we submitted to Federal Insurance Office here, it take the additional step of claiming privilege over the data that insurers file, and enjoys additional lucrative streams of revenue by selling that data to third parties. Unlike either a nonprofit or a regulator, the NAIC is a pretty big player in the data business.
Moreover, where other trade associations and similar non-profit entities are required by the Internal Revenue Service to file annual Form 990 disclosure forms, the NAIC has been exempt from that requirement thanks to a 1999 IRS declaration letter.
All of which brings us to a Feb. 28 letter to Florida Insurance Commissioner Kevin McCarty, the NAIC’s current president, and NAIC CEO Therese Vaughan from Rep. Ed Royce, R-Calif., questioning a recent media report that the group wished “to brand itself as a ‘standard-setting organization’ rather than a trade group.” Royce writes:
It appears, when it suits its purposes, the NAIC fends off questions about its accountability and transparency by arguing that it is “a private group” that “does not have any regulatory authority.” This position is legally essential since, under controlling law, no “private group or association [may] regulate in the field of interstate commerce.” But it would now appear this “traditional” position is politically inconvenient given its attempts to posture itself in the new Dodd-Frank/FIO regime. Present circumstances call for an opposite spin, emphasizing NAIC’s key role in “form[ing] the national system of state-based insurance regulation in the U.S.”
The NAIC’s about-face on its self-proclaimed status in a period of just ten days last summer may best illustrate what appears to be an untenable position. On July 28, 2011 before the House Financial Services Committee, NAIC president, Susan Voss, stated that the NAIC was not part of “some kind of … national regulatory system”…in response to a question regarding its perceived status as a regulatory body lacking traditional accountability. Yet, on August 7, 2011, in what appears to be an effort to demonstrate its relevance in the Dodd-Frank/FIO world, the NAIC claimed it was integral to helping “form the national system of state-based insurance regulation in the U.S”…in an attempt to sell the importance of its pronouncement regarding the financial system. These positions seem, at the least, inconsistent.
The congressman concludes with a series of questions, asking whether the NAIC is a trade association, whether it agrees it is barred as a private group from regulating interstate commerce and whether it can produce the written documentation exempting it from Form 990 filings.
NAIC spokeswoman Vanessa Sink told OutOfTheStormNews that the group is “in receipt of the letter and anticipate responding to Representative Royce.”