Attorney Suggests Royce Wants FIO to Supplant NAIC

Since the NAIC acts in an advisory rather than a compulsory role toward the state insurance regulators, it does not act as a regulator, says Michael Nelson, chairman of law firm Nelson Levine de Luca & Horst.

Rep. Ed Royce's (R.-Calif.) confrontational Feb. 28 open letter addressed to Kevin McCarty, president of the National Association of Insurance Commissioners (NAIC), has no doubt ignited many a private conversation, and this morning some public observations were offered by attorney Michael Nelson, chairman of Philadelphia-based law firm Nelson Levine de Luca & Horst, which represents insurers and reinsurers in regulatory matters.

In a Q&A circulated by the firm touching on various aspects of the federal government's role in insurance regulation, Nelson characterized Royce's letter as reflecting perennial concerns. He affirms that the NAIC's role is a worthwhile discussion topic, but disputes Rep. Royce's assertion that the NAIC is trying to have it both ways, simultaneously enjoying the influence of a regulator and the privileges of a private corporation:

Congressman Royce's assertion that it is inconsistent for the NAIC to say it is integral to helping "form the national system of state-based insurance regulation in the U.S." and that it is a "standard-setting organization" is unfounded.

The NAIC, Nelson elaborated, fulfills a vital role, enabling states to coordinate their regulatory efforts. However, since the NAIC acts in an advisory rather than a compulsory role toward the state insurance regulators, its conduct is not that of a regulator. He then speculates as to Royce's intentions:

Perhaps Congressman Royce envisions FIO filling the role currently occupied by the NAIC.

Royce is a long-time supporter of an Optional Federal Charter (OFC), which would enable insurance carriers to opt for a single federal regulatory authority rather than needing to meet the compliance requirements of all the states and territories within which they do business.

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio