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Public Policy Analysis & Opinion Join the regulators and see the world NAIC looks to spread influence beyond U.S. borders By Kevin P. Hennosy “What I did on my summer vacation” was a favorite writing assignment for elementary school teachers to give their returning charges in the autumn. Well, if the nation’s insurance commissioners went back to school, they would have considerably more to write about today than in years past. If you are an insurance commissioner who stays on the good side of the National Association of Insurance Commissioners (NAIC) senior staff, you very well might have the opportunity to see the world. Before the overseas travel season began in earnest this year, the NAIC met several times in Florida. During its spring national meeting in Orlando, the NAIC officers huddled with a group of consumer advocates to run down the leadership agenda for the year. The officers told the consumer advocates that international issues would be key this year. Now those readers who have read the U.S. Constitution may find it somewhat surprising that an association of state officials would express such interest in international affairs. After all, the business of insurance is interstate commerce, which the Constitution delegates to the federal government. Article I, Section 8, Clause 3 empowers the Congress “To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” Of course the states have held on to their tenuous and limited grasp on the jurisdiction to regulate and tax insurance by arguing that the business is inherently local although it operates in the stream of interstate commerce. Following this logic, the Congress leant authority over insurance to the states because local regulation of insurance served the public interest. Let’s face it; insurance regulation can be less than dazzling on a day-to-day basis. Imagine the sheer boredom that most American regulators endure as they sit through round after round of hearings on commission kick-backs, redlined neighborhoods, elderly victims of fraudulent annuities or whiney people without health insurance. No wonder the travel bug bites. During a recent trip to Brazil, NAIC President and Maine Superintendent of Insurance Al Iuppa delivered an address at a symposium involving the SUSEP (Superintendência de Seguros Privados) and FENASEG (Federação Nacional das Empresas de Seguros Privados e de Capitalização - Brazilian Insurance Industry Federation). The Hotel Pestana in Rio de Janeiro hosted the symposium. No matter what friendly confines housed the symposium, it is interesting to note that Brazil has not always been a friendly confine for agents of American insurance interests. There is the example of New York Life’s efforts to kick The Equitable out of the Brazilian market a century ago. New York Life managed to bribe a Minister of Agriculture, who denied The Equitable’s licence renewal. This led to tit-for-tat political machinations by both companies. The State Department intervened with Brazilian officials but to no avail. Both companies then withdrew from Brazil. When New York Life tried to reenter the country, the domestic industry fought the company’s political efforts tooth and nail. (This contentious Brazilian market was not as difficult as Uraguay, though, where a New York Life business agent was imprisoned over a political disagreement.) In his address, Superintent Iuppa expressed his opinion that, “To meet the challenges of a globalizing financial services sector and to enhance efforts to assist emerging market economies, the NAIC is working to raise the level of international cooperation among regulators as well as the industries we regulate.” This statement veers sharply from the traditional argument delivered by state insurance regulators in defense of the state-based system-keeping regulation at a level closest to the people. If anything, the internationalist argument seems to beg for a strong federal office of insurance regulation. Superintendent Iuppa appears to be striking a pose as the NAIC’s answer to the United Nations’ Dag Hammarskjold. The Superinten-dent sees the NAIC as a platform for international missions and agreements. The NAIC’s role as an international “fixer” has grown more than is generally realized. During the months leading up to China’s admission to the World Trade Organization, NAIC officers and senior staff traveled to China on behalf of one or more life insurance companies that were trying to gain entry into the China market. And a state insurance commissioner also visited China. Following these trips, the NAIC signed a Memorandum of Understanding (MOU) with the China Insurance Regulatory Commission. The NAIC has also signed MOUs with Vietnam, Brazil, and Iraq. What do these MOUs do? They seem to be part of a broader effort to deregulate insurers’ market activities and reduce solvency surveillance. “The NAIC would like to commend SUSEP for its plans to reduce the volume of existing regulation, and instead encourage internal systems of control with greater emphasis on internal and external audits and compliance,” said Superintendent Iuppa. The use of MOUs to establish international trade policy is a controversial practice. MOUs even received attention during the Senate Judiciary Committee hearings on the nomination of Justice Alito. Senator Jeff Sessions questioned the nominee on the practice of independent federal agencies entering into MOUs. Senator Sessions decried the tendencies of some independent agencies to behave as nations rather than executive branch agencies. If the memorandums of understanding between executive branch agencies causes Senator Sessions concern, he may want to look into the NAIC’s activities in the international realm. After all, the NAIC is a private, Delaware-chartered corporation that does not submit to legislative oversight from Congress or any state jurisdiction. The NAIC does not file a tax return, because it holds a tax-exempt opinion letter from the IRS dating back to a time before it incorporated. Furthermore, the NAIC does not file the standard Form 990 that any tax-exempt organization with more than $25,000 a year in income is supposed to file. Nevertheless, the NAIC is signing MOUs with foreign governments and other entities. Since when do secretive private organizations have the authority to negotiate what pass for foreign trade agreements? The efforts to reduce regulatory oversight, in particular the efforts to reduce solvency oversight, should draw concern from the Congress and rank-and-file insurance professionals. When NAIC travels to far off lands to argue the interests of one company or another, it means that the association is picking winners and losers in the market. I believe this is an inappropriate role for the association. Furthermore, if international agreements are necessary to respond to globalization, it should be a matter of federal policy and certainly not the handiwork of a private and nontransparent association like the NAIC. Superintendent Iuppa observed, “The development and success of global financial markets is no longer feasible without international collaboration.” I agree that international cooperation is necessary and proper, but the NAIC is not a nation. Nor can the NAIC claim the mantle of an independent agency. The NAIC simply does not hold the public credentials to negotiate on behalf of the United States. The Framers of the Constitution did just fine in my opinion. We should trust them, even if it means some insurance commissioners miss out on overseas travel. Oversight of what the NAIC likes to call “international insurance relations” should rest with the federal government. * The author |
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