The NAIC streamlines regulatory oversight in an effort to derail national insurance regulation.

Moving at a brisk pace, rarely seen in its 135-year history, the National Association of Insurance Commissioners (NAIC) held the first meeting of the Commission of the Interstate Insurance Product Regulation Compact in early June 2006, just 27 months after its introduction. The Compact aims to streamline state oversight of some insurance products.

Plans are for the Compact to be fully operational in early 2007, allowing states to collectively use their expertise to develop uniform national standards for insurance products, such as life insurance, annuities, disability income and long-term care insurance. This will, the NAIC says, “allow companies to compete more effectively in the modern financial marketplace.”

The prime reason behind the urgency to get the Compact up and running is to thwart congressional action and dampen mounting support from a number of disgruntled property casualty insurance companies for national regulation of insurance in the US. In April 2006, senators John Sununu and Tim Johnson, introduced S.2509, a bill to authorise a federal/state, two-tiered structure “to regulate insurance and… to provide a comprehensive system for the regulation and supervision of National Insurers and National Agencies.” S.2509 now resides in the Senate Banking, Housing and Urban Affairs Committee.

A close reading of the bill reveals that reinsurers can stay wholly outside the federal system, or they can come into it, as national insurers. But, reinsurers can also opt for a federal license, without becoming a national insurer. The option would appear to be of greatest interest to non-US reinsurers as a way to gain “legitimacy” in the US without either going through state licensing procedures or formally becoming a national insurer.

While there is widespread opposition to passing the bill from some insurance organisations and independent agent groups, who can marshal powerful grassroots pressure on elected officials, both senators are young and seem determined to push this bill forward. It is, however, likely to be a multi-year effort because of the revolutionary nature of the bill and the opposition of the old guard.