In the United States, insurance is primarily regulated by the individual states instead of the federal government. Because each state has its own regulatory challenges, the National Association of Insurance Commissioners, or NAIC, works to develop model legislation that can be adopted by the states to encourage the uniformity of insurance regulation across the nation.
What are NAIC model laws?
The model laws drafted by the National Association of Insurance Commissioners (NAIC) are proposed insurance legislations that seek to promote uniformity between the states. The NAIC model laws are influential with state regulators and are a primary reason that the legal framework for insurance regulation across all states has been largely harmonized.
However, it should be clarified that the NAIC does not actually create laws. Whether the states choose to adopt model legislation or come to some sort of overall consensus is up to them. There’s no obligation for the states to enact the NAIC model laws or guidelines.
What’s the purpose of NAIC model laws?
Through committees, task forces, and working groups, the NAIC develops model laws and guidelines to create standardized insurance regulation across all states.
NAIC model laws are put in place in areas where uniformity among states or a minimum national standard is needed. The model laws play an important part in the national system of state-based insurance regulation. Model laws balance the need for uniformity with the needs of insurers operating across multiple jurisdictions and the needs of resident consumers.
The history of NAIC model laws
NAIC model laws find their origin in the passing of the McCarran-Ferguson Act back in 1945. Insurance had long been passed back and forth between state and federal jurisdictions. But a 1944 U.S. Supreme Court decision (Paul v. Virginia) affirmed: Congress had the overarching right to exercise authority over insurance. Then, President Franklin D. Roosevelt signed the McCarran-Ferguson Act into law, which acknowledged the right of Congress to regulate insurance, but which ultimately delegated the basic authority to regulate and tax insurance to the states.
Following the passage of the McCarran-Ferguson act, state insurance regulators working through the NAIC decided it was in their best interest to limit any future intervention by the federal government regarding insurance regulation. They believed the states were the best option for addressing unique state-by-state regulatory challenges. So, they began creating a legal framework to strengthen the states’ regulations.
Low and behold, this legal framework became the model legislation that introduced the rating laws for property and casualty that, though since amended, are still in place today. These model laws continue to provide guidance on writing and pricing insurance policies with the point of improving the availability, fairness, and adequacy of insurance.
How does the NAIC develop model laws?
The NAIC outlines specific criteria for the development of any new model law or the amendment of any existing law. Last updated in 2007, the current procedure requires new or amended model laws to meet the following two standards:
- The subject matter must require a minimum national standard and/or uniformity across the states.
- NAIC members must commit significant state insurance regulator and association resources to encourage adoption across the states.
Once an NAIC committee, task force, or working group identifies an issue that warrants new model development, they must gain approval of the parent committee and Executive (EX) Committee before drafting it. Once the EX Committee approves, the group can begin devoting resources to and developing the model law.
State insurance regulators along with NAIC staff then have a year to complete the drafting work. Throughout the drafting process, the NAIC holds public meetings in which industry representatives, consumer groups, and other interested parties can give their input.
After regulators complete the draft, the group developing the model has two more tests before the model can be accepted. They must obtain (1) a two-thirds majority vote of the responsible parent committee as well as (2) a minimum two-thirds vote of the NAIC EX Committee in favor of the law.
If the group passes both thresholds, it’s party time because the NAIC has itself a brand new model law. The goal is then to encourage regulatory bodies to adopt the model law (preferably without making a whole bunch of changes to it) in as many states as possible within three years of its adoption by the NAIC.
What is the difference between laws and guidelines?
If a proposed law doesn’t meet both standards for development, the NAIC committee, task force, or working group can instead develop a guideline. Guidelines aren’t quite equivalent to NAIC model laws – they’re often closer to best practices for insurance regulation. States can use guidelines as the foundation of a law, regulation, or bulletin.
Who does NAIC model regulation apply to?
The NAIC model laws and guidelines are proposed statements of insurance regulation for all 50 states as well as the other jurisdictions such as D.C. or Guam. Once a model law is passed, states can choose to adhere to it fully, with modifications, or not at all. If a state does choose to adopt the model law, it applies to all carriers, MGAs, agencies and producers operating in that state.
Promoting uniformity among the states
For over 100 years now, the NAIC has been developing model legislation to encourage uniformity among the states for the regulation of insurance products. These days, model regulation touches nearly every facet of insurance from healthcare to cyber security. States continue to adopt and amend model laws along with the ever-evolving regulation of insurance products in the U.S.
Keeping things consistent across states can help agents avoid confusion and cut down on non-compliance. But, you can count a universal U.S. standard of insurance regulation out of the question.
The country’s state-based system means you still need to keep track of regulatory compliance for your agency, carrier, or MGA across all 50 states. Luckily, you don’t have to face this challenge alone. See how AgentSync bakes up-to-date regulatory changes into your producer management workflows to ensure continuous agency compliance.
