Insurers Blast Regulators as Closed to Open Dialogue

The National Association of Insurance Commissioners is losing trust because it at times operates behind closed doors and is not open to dialogue with the insurance industry. That was the criticism of NAIC, as voiced by representatives of the American Insurance Association, National Association of Mutual Insurance Companies, Property Casualty Insurers Association of America and American Council of Life Insurers at the NAIC’s Industry Liaison Meeting on June 1, 2008, in San Francisco.

Michael Lovendusky, association general counsel for ACLI, described the NAIC as a conflicted 137-year-old organization and a 13-year-old organization. The older NAIC, he said, worked well with the insurance industry. “That cooperative effort is being destroyed in ways we don’t understand,” he said, noting that the younger NAIC often fails to have discussions with the industry. That results in insurance groups going on a “scavenger hunt” to seek information as to what NAIC business is conducted behind closed doors, he noted.

Deirdre Manna, vice president of industry and regulatory affairs for PCI, said a prime example of the poor communication with the insurance industry was on the topic of credit scoring. Noting Florida Insurance Commissioner Kevin McCarty’s remarks to Congress on two bills proposing to ban credit scoring, Manna indicated that McCarty was placed in a difficult position in trying to represent the NAIC’s views on the bills, as well as his own views.

On May 21, 2008, McCarty testified before the U.S. House Financial Services Committee’s Subcommittee on Oversight and Investigations hearing titled, “The Impact of Credit-Based Insurance Scoring on the Availability and Affordability of Insurance. McCarty said he personally supported one bill, while he said the NAIC supported the other.

The insurance associations generally felt the disjointed testimony reflected poorly on the industry and NAIC. They disagreed with McCarty’s remarks, which Manna said shone a spotlight on the fact that NAIC has provided no information on how the NAIC chooses a person to testify before Congress, and how what the chosen person will say before Congress is reviewed. She said her organization has asked NAIC about its testifying practices in the past.

Neil Alldredge, NAMIC’s vice president of state and regulatory affairs, agreed, and said McCarty’s testimony to Congress was a lost opportunity, in which the organization could have demonstrated to Congress that it could deal with tough issues. McCarty could have shown to Congress that the NAIC and states act uniformly, as 48 states have laws dealing with credit scoring, eliminating the need for a federal law on the issue. Instead, Alldredge said, McCarty’s testimony focused on his outlying state’s view, which nearly “created an inflammatory issue.” As a result, Congress is not clear on the official position of NAIC, he said.

David Snyder AIA’s vice president and assistant general counsel, agreed that McCarty’s testimony “represented a minority position that is not shared by 45 other states,” he said. “In this case, [McCarty’s testimony] didn’t represent the careful work that had been done.”

Consequently, the insurance industry associations indicated they are concerned that this situation could be replicated, unless NAIC changes its procedures and practices.

As another example, Manna brought up the Market Conduct Annual Statement proposal that would require companies to report MCAS data elements on a supplemental to their financial annual statements. PCI is opposed to the proposal, but Manna said NAIC has provided “no real opportunities for full vetting of the issue.”

Snyder agreed that more dialogue on the MCAS topic was needed, and he indicated he felt like the industry and NAIC were like “ships passing in the night.”

Michael McRaith, Illinois’ insurance director and chair of the meeting, said, “We all come from different places, but the important point is we do need to have constructive conversation.”

McRaith and Montana State Auditor John Morrison suggested the insurance industry associations would be more likely to have better outcomes on NAIC decisions if the associations put forth proposals on handling issues, instead of just criticisms.

“Not to sound like Dr. Phil, but I think conversations would be more constructive if we actually listen to each other. If you have specific ideas, let’s try to talk about that,” he told the industry.