Former Commissioners Warn NAIC In Danger Of ‘Falling Apart’
October 4, 2013 by Jeff Jeffrey
The National Association of Insurance Commissioners is in danger of “falling apart” under mounting pressure from international regulators to better coordinate the regulation of insurance, three former insurance commissioners told attendees of the National Risk Retention Association’s annual conference in Washington.
Charles Cohen, a former insurance director in Arizona who is now an attorney at Low & Cohen in Phoenix, said the NAIC is “fighting a losing battle to stay relevant” as the federal government begins to play a larger role in the regulation of insurance and European regulators move toward a continent-wide regulatory system.
“They look at the NAIC and see what is a very odd organization,” Cohen said. “The NAIC is at the mercy of forces that are much bigger than they are.”
Cohen cited the Financial Stability Oversight Council’s recent decisions to designate American International Group Inc. and Prudential Financial Inc. as systemically important non-bank financial institutions that will be subject to additional regulatory oversight from theFederal Reserve Board because they could pose a threat to the U.S. financial system. As non-bank SIFIs, AIG and Prudential became the first insurance companies to face federal regulation in more than a century.
Metropolitan Life Inc. has confirmed it has reached the third stage of FSOC’s process for designating potential non-bank SIFIs.
AIG, MetLife and Prudential have also been designated as global systemically important insurers by the G-20s Financial Stability Board, which will require them to meet additional capital standards and regulatory requirements (Best’s News Service, Sept. 20, 2013).
Thomas Hampton, a former Washington, D.C. insurance commissioner, said the European Union’s ongoing effort to implement the Solvency II regulatory regime across Europe will add to the pressure on the United States to move toward a unified regulatory regime, rather than the existing state-led system. “Federal regulation is going to happen because it’s going to be very, very difficult for the NAIC to keep going the way it’s going under this pressure. There are just too many things that are happening right now,” said Hampton, who is now a senior adviser at the law firm Dentons. “The organization is at risk of becoming irrelevant and it’s going to be fighting for its life.”
Larry Mirel, a partner at Nelson Levine de Luca & Hamilton, said during his six-year term as Washington, D.C. insurance commissioner, he thought the NAIC should have pushed for the enactment of a “passport system,” in which decisions made by regulators in one state would be automatically recognized by regulators in all other states. Mirel compared that system to one already in place in many European jurisdictions. “I thought that then, and I still feel that way,” Mirel said.
That said, European regulators are facing problems of their own.
This week, the European Commission formally requested a delay in the formal implementation of the Solvency II capital adequacy directive to Jan. 1, 2016.Michel Barnier, European Commission member for Internal Markets, said the EC has, at his request, put forward a draft directive postponing the application date of Solvency II to 2016, citing ongoing problems related to certain aspects in insurance regulation for the 28 member states of the European Union (Best’s News Service,Oct. 2, 2013).
Meanwhile, the U.S. system garnered praise from the Government Accountability Office, which said in a June report that actions taken by state and federal regulators and the NAIC helped to limit the effects of the financial crisis of 2008 and 2009 (Best’s News Service, July 31, 2013).
Efforts to reach the NAIC for comment on the statements made at the NRRA’s conference were not immediately successful.
(By Jeff Jeffrey, Washington Bureau manager: jeff.jeffrey@ambest.com)
