NAMIC Objects to CFA’s Model for Insurance Regulation

The National Association of Mutual Insurance Companies (NAMIC) registered strong opposition to a draft proposal by the Consumer Federation of America (CFA) that would severely limit the authority of state regulators.

“CFA suggests radical changes to public policy that would undermine the state regulation of insurance,” wrote NAMIC Legislative and Regulatory Counsel, Peter A. Bisbecos, to Kathleen Sebelius, National Association of Insurance Commissioners (NAIC) president.

“Under the CFA draft proposal, the regulatory system would be mired in litigation and the intervention of private actors would severely limit a regulator’s statutory duty to protect consumers.”

CFA Director of Insurance, J. Robert Hunter, made public a discussion draft of the Proposed Model Personal Lines Insurance Regulatory Bill at the Aug. 14 interim meeting of the State Based Systems Working Group in Kansas City, Mo.

NAMIC’s objections center on three areas: open intervention in the regulatory process by private actors, award of fees to interveners, and limitations on campaign contributions to candidates for insurance commissioner.

Open Intervention in the Regulatory Process by Private Actors
The CFA model proposes: “Any person may initiate or intervene in any proceeding permitted or established pursuant to this chapter, challenge any action of the commissioner under this article, and enforce any provisions of this article.”

NAMIC RESPONSE: “This provision would transform insurance commissioners from policy makers into targets of litigation, which will hamper regulator ability to effectively regulate the industry. Every regulatory decision would be subject to challenge and review, because ‘any person,’ of their own individual volition, ‘may enforce any provisions of this article.'”

Award of Fees to Interveners
The CFA model also proposes the award of reasonable advocacy and witness fees and expenses to any person who demonstrates that, “(1) the person represents the interest of consumers, and, (2) that he or she has made a substantial contribution to the adoption of any order, regulation or decision by the commissioner or a court. Where such advocacy occurs in response to a rate application, the applicant shall pay the award.”

NAMIC RESPONSE: “The most obvious objection is that this language would most likely become a new mode of fee generation.”

Bisbecos wrote that this provision is deeply flawed because it employs a nebulous, extremely low, and overly permissive standard.

“Unlike fees awarded in litigation, there is no counterbalance providing for sanctions in the event of a frivolous intervention. Absent a sanction for frivolous intervention a lone voice driven by anger, jealousy or greed may impede or enjoin decisions that are best for the public.”

“The most troubling aspect of this provision is the stripping of regulator discretion to enforce state law.”

“NAMIC endorses regulatory modernization and competition because they have been proven to best serve the long-term interests of consumers and insurers. One element necessary to the success of this system is that regulators have the discretion, time and resources necessary to address critical issues such as: market conduct examinations and solvency.”

Campaign Contribution Limits
The CFA model would ban “financial contributions from any person company or organization licensed or authorized by the department of insurance.”

NAMIC RESPONSE: “NAMIC is most troubled that this law clears the way for special interests to unduly influence elections for insurance commissioner.”

“If anyone claiming to represent the interest of consumers may intervene in any decision made by a commissioner and may be awarded fees for their intervention, this provision will most assuredly attract and sustain regular interveners. Common sense suggests these interveners could be highly motivated to become involved for reasons other than pure public policy interests and could be enriched through their action.”

“Under the CFA draft interveners, unlike licensed insurers, will be able to make financial contributions to candidates for commissioner. The clear result is that one interest group may contribute money while the other may not. If this were an even-handed attempt to avoid financial influence in elections, the CFA would have proposed that interveners and consumer groups would also be prohibited from contributing money. This proposal creates a system that will, at best, suffer from the perception of insider dealing and corruption.”

A copy of the letter, which was sent to all insurance commissioners on Aug. 31, is on NAMIC’s website, NAMIC Online, at