The National Association of Insurance Commissioners (NAIC) is reeling in the challenges to the state-based system of insurance regulation. At the association's spring national meeting in early March, the NAIC looked bad.
PUBLIC POLICY ANALYSIS & OPINION
By Kevin P. Hennosy
Secret meeting at NAIC alienates industry and consumer advocates
The last time that insurance regulation seemed poised for massive change, the historic case of United States v. South-Eastern Underwriters Association was working its way through the federal courts.
The National Association of Insurance Commissioners (NAIC) is reeling in the challenges to the state-based system of insurance regulation. At the association's spring national meeting in early March, the NAIC looked bad.
Unlike the days of old when the association coordinated responses to regulatory challenges, the NAIC seems mired in self-doubt today. To make matters worse, the new NAIC leadership got off to a rough start.
The 2003 NAIC leadership consists of Arkansas Commissioner Mike Pickens (president), South Carolina Commissioner Ernst Csiszar (vice president) and Oregon Administrator Joel Ario (secretary-treasurer). They have a tough job ahead of them.
The last time that insurance regulation seemed poised for massive change, the historic case of United States v. South-Eastern Underwriters Association (1944) was working its way through the federal courts. At that time, a Justice Department attorney wrote the following political assessment of the defense of state insurance regulation:
"Masquerading in the white robes of States Rights, with an inspired lobby of Governors as shock troops and the far-flung system of fire insurance organizations as heavy artillery, the insurance companies have audaciously opened an offensive for special privilege which, unless it is promptly and effectively combated, will deliver the insurance buying public completely into their hands."
The defense of state regulation does not seem so daunting today.
Secret task force meeting
The NAIC leadership invited political discord from industry and consumer advocates alike with the inaugural meeting of the Government Affairs Task Force. Terri Vaughn, Iowa insurance commissioner and NAIC immediate past president, chairs the task force. The controversy arose when it convened for its first meeting only to shoo out the non-regulatory attendees after five minutes. The task force continued to meet in secret session for the balance of an hour.
In a prepared statement to the media, Commissioner Vaughan said: "This group will help us coordinate and manage our resources. We will not remain passive and allow others to determine the future of state regulation."
Most observers have waited for the NAIC to assume its more traditional, active role in the policy process, so the task force's formation is welcomed in many quarters.
It is the decision to conduct the meetings in secret that concerns both consumer and industry advocates. If the NAIC wishes to assume the mantle of speaking for public officials, then advocates believe that the association should conduct its business in public.
Why do these groups believe the task force meetings should be open? They have parochial reasons of course. Both consumer and industry advocates fear that the NAIC will sell out their interests when negotiating with Congress. Secret meetings do not build trust among excluded parties.
Grassroots
This was not supposed to be a year of secret meetings at the NAIC. To the contrary, 2003 was supposed to be a year of public outreach and grassroots organizing.
Attendees at the national meeting were particularly perplexed, if not amused, by the task force making plans for a "grassroots" campaign in a secret session. Political observers do not generally equate terms "grassroots" and "secret."
The NAIC effort at grassroots organizing is named Alliance for Sound State Uniform Regulatory Efficiency (ASSURE). It's a cumbersome name but the acronym works. The ASSURE campaign was designed to organize political opposition to federal charter and similar regulatory proposals.
According to an ASSURE promotional presentation: "In 2001, NAIC members endorsed the need for grassroots measures to ensure the voices of consumers, state legislators, business and industry leaders are heard and enhance the presence of state insurance regulators in public policy debates, especially Congress."
The original plans for ASSURE called for active participation in the campaign by representatives of all interested parties. The program was all about outreach to build a coalition to put pressure on Congress. ASSURE was supposed to rely on a diverse and empowered membership because, according to the promotional presentation: "the main component of any grassroots organization is strong membership.
* "The co-chairs will target and recruit individuals to serve on a steering committee individuals who will be helpful to the cause, i.e., consumers, legislators, business and industry leaders.
* "Members of the steering committee will then recruit through their contacts, sending out membership forms and directing others to the ASSURE website.
* "NAIC Washington DC staff will continue to work with national trade associations to identify prospective coalition members in the states."
Sometime in early 2003, the grassroots organization started to take on the qualities of Astroturf. Rather than being compiled and controlled by members, ASSURE became something that was mentioned in NAIC documents but never publicly discussed.
Secrets
Now that the ASSURE program has been placed under a task force that intends to meet in secret, the grassroots nature of the program has been questioned by many NAIC meeting attendees. That task force is chaired by a commissioner who has earned a reputation for single-minded purpose and not for fostering a meeting of the minds.
Observers from both consumer advocacy and the insurance industry have expressed concern that Commissioner Vaughan will co-opt ASSURE as a campaign vehicle for her interstate compact proposal.
The compact proposal has languished since she pushed it through the NAIC's committee structure last December. Industry support for the proposal is lukewarm at best, and consumer groups oppose it with an uncharacteristic unity. ASSURE will not build a broad-based political alliance if it is based on the interstate compact proposal.
Consumers
Consumer advocates, who were supposed to take a role in the ASSURE membership, took note at how the South Carolina Insurance Department implemented the campaign. To date, neither consumers nor non-insurance business groups appear to have a role in the South Carolina campaign.
Even the role of state officials seems limited. When the South Carolina ASSURE program was announced to the press and public, it was the Alliance of American Insurers that issued the news release. The insurance department and the governor's office were silent on the matter.
The Alliance of American Insurers release touted the association's leadership role in the campaign. "The Alliance of American Insurers, a national trade association representing more than 340 property/casualty insurers, has put together an industry coalition to support the grassroots campaign. Among those participating are the Independent Insurance Agents of SC, the Professional Insurance Agents (PIA) of SC, and the SC Captive Insurance Association. Alliance member companies based in South Carolina include the Canal Group, Capital City Insurance Co., Companion Property and Casualty Group, Seibels Bruce Group, South Carolina Farm Bureau Group, and the Southern Mutual Church Insurance Group."
In announcing South Carolina Governor Mark Sanford's support for the ASSURE campaign, the news release characterized the campaign as an industry-only event: "The governor gave his support to a coalition of South Carolina-based insurance companies and agents who have pledged their resources to maintain the 130-year-old system of state-based regulation in this country."
The Alliance release highlights the importance of maintaining premium tax revenue at the state level. The release quotes Governor Sanford: "The industry paid over $108 million in premium taxes alone. Placing regulation in the hands of the federal government would almost certainly have a negative impact on the state's economy."
To consumer advocates in other jurisdictions, the South Carolina example has confirmed their worst fears about the ASSURE campaign. They feared that the campaign would be an industry-run show. They feared that ASSURE campaigns would trade consumer protections for insurance company support for continued state jurisdiction over insurance premium tax revenue. This perception, right or wrong, will make it increasingly difficult for ASSURE campaigns in other states to garner consumer support.
The dance
The game is not over for NAIC or state insurance regulation, but the team does not look too sharp as it takes the field. They seem giddy to try every trick play in the book, but they cannot play defense. Defense wins championships--ask Ohio State.
Good defense does not offer to score points for the other team--and that is what the NAIC has done over the past few years. They have adopted an odd strategy of "regulation through deregulation."
If the NAIC would use its opposition of Association Health Plans (AHPs) as a model, they could present an aggressive defense--and score points for insurers and consumers to boot. The NAIC argues from a moral high ground on the AHP issue. They remind Congress that broad preemptions to state law have harmed consumers and skewed competitive markets. For a decade, the NAIC has stymied the AHP proposal in Congress by presenting evidence that it would undermine the regulatory framework and harm consumers. This is an effective and tested political approach.
Instead of focusing on winning the game, the NAIC seems preoccupied with finding a date to the big dance on Capitol Hill. The NAIC has ingratiated itself to a few company trade associations that support, or threaten to support, federal charter legislation. The NAIC has tangoed to the tune of deregulation in the hopes of attracting suitors who have long ago forgotten them. It is a political dance of death where consumers and producers play the role of wallflowers. *
The author
Kevin Hennosy, an insurance writer specializing in the history and politics of insurance regulation, covers the proceedings of the NAIC (National Association of Insurance Commissioners) for Rough Notes readers. He has written extensively on insurance regulation and testified before the NAIC as a consumer advocate.