Knocking at the door

State insurance-focused legislators are demanding a say, if not the final say, in regulating insurance.

By John Hilton

Editor’s Note: This is the third of a threepart series on the state-based insurance regulatory system. This month’s story takes a look at the National Council of Insurance Legislators and its niche role in the regulatory system.

The regulation of insurance starts with state insurance departments. The National Association of Insurance Commissioners traces its roots to 1871.

At the federal level, the Department of Labor continues to pursue a fiduciary standard to rope in sales of complex annuities. And the courts are hearing repeated lawsuits over indexed universal life illustrations.

It’s easy to see why insurance-focused state legislators sometimes feel left out of the loop. The National Council of Insurance Legislators formed in 1969 and is still trying to make up for lost time.

“The passing of laws is a legislative function. The promulgation of regulation is a regulatory function,” said Thomas Considine, CEO of NCOIL. “If we were building the house all over again, it would be the role of NCOIL to pass model laws and it would be the role of the NAIC to pass model regulation. It doesn’t work that way. And we’re decades and decades down the road. So, it is what it is.”

Still, as the ancient proverb puts it, “The enemy of my enemy is my friend,” and NCOIL and the NAIC have a big, overarching goal in common.

Both groups are most passionate about preserving the state-based system of insurance regulation, which keeps the regulators and legislators working together, despite tense turf skirmishes.

“There’s going to be a lot of issues that the NAIC will have a different view than NCOIL will,” Considine said. “But we’ve got to remember to keep our eye on the overall prize of state regulation of insurance and when we disagree, we have to disagree agreeably.”

NCOIL comprises state legislators with a focus on insurance. Generally, NCOIL members sit on a legislative insurance committee in their respective states. The council meets three times a year in person: spring and summer meetings followed by an annual meeting in the fall.

Headquartered in New Jersey, NCOIL is funded by state dues of $20,000 per year. While all 50 states are NCOIL members, only 32 were dues-paying “contributing members” in 2022, said Patrick Gilbert, manager of administration and member services for NCOIL.

Model laws

NCOIL members spend most of their time working on model laws and issues of importance to the insurance industry. Currently, members are working on models for hospital price transparency and a “life insurance is a promise for life” concept.

Some life insurance options end up treating customers differently and unfairly, Considine explained. The NCOIL model tries to address those situations. Here are two things he pointed out.

» Ends enhanced cash surrender offers to specifically selected customers. “It’s fundamentally unfair to all other similarly situated consumers,” Considine said. “It would bar that kind of conduct.”

» Clarifies genetic test rules. “It would allow insurers to ask applicants if they’ve had a genetic test and, if they have, to disclose that,” Considine said. “Otherwise, it creates adverse selection issues if the insurer doesn’t know that the applicant had that.”

While NCOIL model laws have no authority behind them, they are sent to all 50 states and are adopted into law with varying degrees of success.

NCOIL has seven policy committees covering life, health, and even federal and international issues.

To date, more than 75 model laws have been passed and sent to the states for consideration, Gilbert said.

“Some are really popular, and some are less so,” Considine said.

More recently, NCOIL committees are delving into the more controversial issues of the day, including a yearlong exploration of environmental, social and governance issues.

NCOIL can do those things due to a stringent commitment to nonpartisanship, Considine explained. The council alternates its annual presidency position between Republican and Democrat. This year, Rep. Deborah Ferguson, D-Ark., is serving as president, and she will be succeeded by Rep. Tom Oliverson, R-Texas, in 2024.

“Insurance issues are far more regional than they are partisan and far more substantive than they are partisan,” Considine said.

Occasional conflict

One of the council’s committees is the NCOIL-NAIC Dialogue Committee. Regulators and legislators from both groups devote great effort to communication and working together. But as former NAIC CEO Mike Consedine once said, “I think it’s fair to say there have been some very occasional differences and maybe how we approach issues or discuss issues.”

Consedine, who stepped down earlier this year, made the comment to Rep. Matt Lehman, R-Ind., during a 2021 episode of The Regulators, a podcast produced by the NAIC. Lehman served as president of NCOIL in 2020.

“We both share a very common goal, and that common goal has been around for a long, long time, and that is to protect statebased insurance regulation,” Lehman replied. “In my 30 years in the insurance business, that has come under challenge.”

Despite the motivation that the antifederalist goal provides both organizations, there have been conflicts. Legislators want to create the legislation, a duty that regulators have been encroaching on for some time.

“Incorporation by reference” refers to adopting changes without a formal approval process, and it has become “a sore spot” for legislators, Thomas Considine said.

“What is a little bit more troubling is when the NAIC passes something and they stick it in a handbook, or they stick it in a manual, and then they adopt that manual at the end of the year,” he explained. “And then those manuals automatically take effect.”

Lehman was president when a rift erupted between the two organizations in the summer of 2020. The NCOIL executive committee passed a resolution urging the NAIC “To refrain from intruding on the constitutional role of state legislators.”

NAIC work to review and determine rate requests is the issue that motivated the resolution, specifically the use of big data and other information technologies. The NAIC Artificial Intelligence Working Group voted unanimously to adopt “Principles for Artificial Intelligence.”

The document includes the phrase “AI users should proactively avoid proxy discrimination against protected classes.” Meanwhile, the NAIC Casualty Actuarial and Statistical Task Force debated a white paper titled “Regulatory Review of Predictive Models.”

The white paper drew the ire of NCOIL, with Assemblyman Ken Cooley, D-Calif., describing it as regulators freelancing too much.

“I am not king, you are not king, and certainly the NAIC is not king,” Cooley said during a July 2020 call. “We are a system of laws. You can’t just pull things out of thin air.”

‘Really improved’

Eventually the tension passed, and the organizations began working together again. Considine, formerly a member of both the NAIC Executive Committee and its board of directors, took over NCOIL on Jan. 1, 2016, after the council created the CEO position. He did so with cooperation as a big priority.

The organizations have long held an NAIC-NCOIL Roundtable. Before Considine took over, the NAIC representatives were seated at what he called “a witness table” in the center while NCOIL members sat in a U-shaped table on the outside.

Considine changed the seating arrangements to foster “a dialogue back and forth among colleagues.” While that was just a small change, it is important that regulators and legislators see one another as partners on the same side.

“There are fundamental differences,” Considine said. “But things have really, really improved.”

InsuranceNewsNet

Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.