Public Policy Analysis & Opinion

But they are Napoleon!

The NAIC continues efforts toward world domination

By Kevin P. Hennosy

In the Halls of Government, in learned Think Tanks and probably even in Houses of Worship, policymakers, moral philosophers and ecclesiastics almost certainly ponder the same solemn question: What does the National Association of Insurance Commissioners (NAIC) need?

Of course, to any seasoned observer, the term "celebrity spokesperson" jumps to mind; however, as of June 5, 2012, this important asset can be struck from the "need" list at NAIC.

On that historic date, the NAIC announced a "new partnership with GRAMMY®-winning singer-songwriter Amy Grant. Grant is joining the association's Insure U consumer education campaign to help encourage baby boomers to get smart about the unique and often complicated insurance decisions they face. The partnership will feature a new radio public service announcement (PSA) and enhanced online information at Insure U."

Obviously, vast numbers of Americans will wander through life making one financial folly after another—foregoing the trusted advice of tested and licensed professionals—without the insight a GRAMMY-winning singer can provide in 30- to 60-second intervals.

"We are thrilled to have Amy on board to reach the boomer population with important messages about specific insurance needs and challenges at this time in their life," said Kevin M. McCarty, NAIC president and Florida insurance commissioner. "Many boomers are simultaneously caring for kids, parents and thinking about their own retirement—and with each of those responsibilities comes a fear about making the wrong choice when it comes to insurance coverage. The unbiased information at Insure U can help navigate those difficult decisions."

Amy Grant's career began over 30 years ago "and stretches from her roots in gospel into an iconic pop star, songwriter, television personality and philanthropist," according to the NAIC statement.

The spokesperson initiative is designed to drive inquiries about various insurance products to a section of the NAIC Web site called "Insure U." The site presents descriptions of insurance products, and provides access to a small number of NAIC-approved consumer guides. The Insure U site also provides links to consumer information pages of state insurance department Web sites.

When not rubbing elbows with GRAMMY® Award winning singers, the NAIC leadership focuses on world domination.

In early June, the NAIC announced the opening of registration for the 19th annual meeting of the International Association of Insurance Supervisors (IAIS). The conference will convene October 10-12 at the Grand Hyatt Washington D.C. The IAIS's operations in the United States are tied to the NAIC, but it operates under a shadowy relationship with the Bank of International Settlements.

"The IAIS Annual Conference provides an excellent opportunity for insurance supervisors, industry members and other participants to discuss and exchange ideas on important issues related to the supervision of insurance, developments in insurance markets and industry as well as in the financial sector as a whole. The theme for the 2012 IAIS Annual Conference is 'Insurance Supervision: Foundations for Global Financial Strength' to reflect both the challenges faced by insurance supervisors worldwide and the role of insurance in the global financial sector," according to the NAIC Web site.

Pay-to-play

Participating at the IAIS is not a low-dollar hobby. In order to participate in the IAIS's activities, an individual or entity must pay a considerable financial tribute to the IAIS, which is worthy of attention from Transparency International and/or the U.S. Department of Justice.

Individuals and entities may purchase access to the IAIS by paying to become an "Observer." According to the IAIS Web site, the annual fee to become an Observer is 17,800 Swiss Francs, which in early June 2012 converted to $18,634.85. Governmental "members" of the IAIS are not charged an annual membership fee.

In return for the cash, the IAIS Web site explains that Observers receive the following by way of access and participation:

Observership of the IAIS is open to all those who are not regulators or supervisors but who are interested in contributing to the work of the IAIS, for example insurance companies, insurance brokers or accounting firms.

As an IAIS Observer you would have the following benefits:• be involved in the official consultation procedure for IAIS insurance standards and to make comments on draft IAIS standards (emphasis added)• participate in IAIS seminars and conferences• receive all information and documentation distributed to Observers• have access to the Observer area of the IAIS website

Non-regulatory IAIS conference attendees who have not ponied-up for the Observer card face a $2,000 conference fee and may not participate in the proceedings. Participating members and Observers owe a conference fee of $1,100. The NAIC expects at least 500 attendees to register for the conference.

The cost of lodging at the IAIS conference is not an example of transparency in action. The only way to find out the rate being charged to conference attendees is to register for the meeting with the NAIC, and then receive a link to a secret Web page. Of course, an attendee does not know whether the room rate is higher or lower than that charged to any other attendee—or whether their room might be subsidized in violation of ethics laws governing state officials.

To those individuals and entities willing to pay the price of admission, the NAIC offers a guarantee of high-level access with all the confidence of a New Orleans Madame.

According to the NAIC Web site: "The conference brings together supervisors and observers from around the world to participate in topical panel discussions and presentations from international insurance experts. This year's conference promises to provide an engaging forum for attendees to examine pressing issues in the international insurance community, such as insurance and financial stability; consumer protection and market conduct; and developing front line supervisors." Just come across with the money first, and you get access to public officials and their work.

And if an attendee wishes to pay for a lagniappe, a little something extra, the NAIC provides the direct but discreet opportunity to spend some more money.

The NAIC provides a Web page which encourages potential attendees to become a sponsor of the IAIS Conference. "This one-of-a-kind international insurance supervisory conference would not be possible without contributions from sponsors. We value the role sponsors play in ensuring that the 2012 Annual Conference is a success and would greatly appreciate if you would consider being a sponsor for the 2012 Annual Conference—below is a list of the sponsorship levels and respective sponsorship package benefits."

It is interesting to note that the list of sponsorship levels and respective sponsorship package benefits do not appear on the Web site. Only headings appear below the paragraph which pitches for contributions.

You can almost hear a tinny piano playing in the background of this pay-to-play activity, which is not the kind of music that one usually associates with Amy Grant. "Jelly Roll" Morton, yes—but Amy Grant, no.

Standards setter

The NAIC stressed the importance of its relationship with the IAIS, as a means of presenting itself as an "international standards setter." It is more accurate to say that the IAIS is an international standards setter, as charged by the G-20 group of industrialized nations. The NAIC uses its association with the IAIS to claim international status. The IAIS standards are not automatically adopted by U.S. jurisdictions and neither are NAIC model laws, regulations or guidelines, unless contained in the annual financial statement.

On May 17, 2012, Florida Insurance Commissioner and NAIC President Kevin M. McCarty testified at a hearing of the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity. Even before the announcement of the NAIC retaining a celebrity spokesperson, Commissioner McCarty described what might be termed "The Greater NAIC." His testimony went on to outline the various ways that U.S. regulators lead the way on international insurance issues including standard-setting; trade and economic development; and enhanced regulatory communication.

"State regulators provide international leadership by setting strong standards and developing creative solutions to regulatory challenges while remaining focused on the protection of policyholders," McCarty said. Commissioner McCarty's testimony did not shine light on the pay-to-play system established to limit the participation in the IAIS activity; however, the IAIS did play a vital role in the story told by the commissioner:

The IAIS is led by an Executive Committee, which has three representatives from the United States, including Dr. Terri Vaughan, the NAIC's Chief Executive Officer; Michael McRaith, the Director of the FIO [Federal Insurance Officer]; and myself as President of the NAIC. Additionally, U.S. insurance regulators and NAIC staff are active participants in almost all of the twenty working parties of the IAIS, serving as the Chair of the Solvency Subcommittee, and the Vice Chairs of three other working parties: the Financial Stability Committee, the Supervisory Forum, and the Standards Observance Subcommittee. Our active participation and leadership roles in these various working parties continues to ensure that the national system of state-based insurance regulation in the U.S. has a prominent voice in the international arena as we discuss global insurance principles and standards.

Rightly or wrongly, the IAIS is not merely some kind of club or trade association. In written congressional testimony also delivered on May 17, 2012, the Council of Insurance Agents and Brokers observed: "The IAIS has, among other responsibilities, international standard setting authority granted by member nations of the G-20."

In apparent disregard for the imperial glory of The Greater NAIC, and its exalted position as contracting agent to a celebrity spokeswoman, the Property Casualty Insurance Association of America (PCI) raised questions about the propriety of the jurisdictional transfer of policy development to shadowy international cabals. The PCI can be so unreasonable. 

The PCI testimony explains: "This internationalization of insurance regulation has significantly escalated since the onset of the 2008 financial crisis. In 2009, the G-20 finance ministers and bank regulators committed to establishing 'internationally agreed high standards that a global system requires' and to create a new Financial Stability Board (FSB) of primarily finance ministers and bank regulators to 'reshape our regulatory systems.' The U.S. Department of Treasury the same year advocated the need to 'coordinate international financial policy through the G-20, the Financial Stability Board, and the Basel Committee on Banking Supervision.' FSB members, including Treasury and the Federal Reserve Board, have committed their countries to implement global standards, including FSB standards on insurance and the insurance core principles (ICPs) developed by the [IAIS]."

Furthermore, the PCI asserts: "While insurance has not been a primary focus of the G-20 or FSB, demands for additional insurance regulation are frequently included in the barrage of FSB international reform directives because insurance is a part of the financial sector, and especially because insurers often exist within financial groups that engage in a range of financial services. Neither Congress nor the states have authorized any of these international standard setting efforts, nor does the FSB include any insurance-specific members other than the IAIS."

Based on the pay-to-play rules that the IAIS operates under, the PCI's first step in correcting the systems should be to send a payment in the amount of 17,800 Swiss Francs, augmented with a couple of grand toward convention fees, to the international standards setting organization. Possibly a material tribute of undetermined cash value may make the continental agent smile upon the PCI's interest.

In short, the IAIS arrangement which the NAIC facilitates relies on is the concept of virtual representation. Just the same as the colonial agents of the British Crown offered American colonists in the 18th century, which was an arrangement based on patronage and influence. Not everything the colonial agents provided was bad, but our ancestors viewed the pay-to-play arrangement as corrupt. They fought a revolution over it.

The author

Kevin P. Hennosy is an insurance writer who specializes in the history and politics of insurance regulation. He began his insurance career in the regulatory compliance office of Nationwide Insurance Cos. and then served as public affairs manager for the National Association of Insurance Commissioners (NAIC). Since leaving the NAIC staff, he has written extensively on insurance regulation and testified before the NAIC as a consumer advocate.