Question

Review the historical origins and development of state insurance regulation

2- Explain the role of the National Association of Insurance Commissioners in coordinating and serving state insurance regulators.

Answer 1

1. Historical origins of state insurance regulation :

Historically, the insurance industry has been regulated almost exclusively by the individual state governments. The first state commissioner of insurance was appointed in New Hampshire in 1851 and the state-based insurance regulatory system grew as quickly as the insurance industry itself^. Prior to this period, insurance was primarily regulated by corporate charter, state statutory law and de facto regulation by the courts in judicial decisions. States coordinate through a nonprofit trade association of state regulatory agencies called the National Association of Insurance Commissioners, which proposes model laws which may be adopted by the members. In 1869, the United States Supreme Court cemented state-based insurance regulation as the law of the land when it ruled in Paul v. Virginia that the issuance of a policy of insurance was not the transaction of commerce, and therefore beyond the scope of federal legislation.

More than 70 years, later, however, the Supreme Court overturned that decision in United States v. South-Eastern Underwriters Association, holding that insurance was subject to certain federal legislation such as the federal antitrust statute.The United State Congress responded almost immediately: in 1945, Congress passed the McCarran-Ferguson Act. The McCarran-Ferguson Act specifically provides that the regulation of the business of insurance by the state governments is in the public interest. After the McCarran-Ferguson Act, the business of insurance remained substantially regulated by state statutory and administrative laws through the years.

In 1972, the model law Unfair Claims Settlement Act was written, which has since been adopted by most states with various modifications.

Expansion or development of state insurance regulation :

Despite the long history of state-based insurance regulation, federal regulatory influence has been expanding in the past several decades. Early federal laws passed included the National Flood Insurance Act of 1968, and a Federal Crime Insurance Program was implemented which the Government Accountability Office recommended terminating in 1982.From 1986 to 1992, there were 276 insurer bankruptcies. In response to the disruption, the National Association of Insurance Commissioners (“NAIC”) adopted several model reforms for state insurance regulation, including risk-based capital requirements, financial regulation accreditation standards, guaranty associations and an initiative to codify accounting principles into the modern Statutory Accounting Principles.

In 1999, Congress passed the Gramm-Leach-Bliley Financial Modernization Act, which sets out certain minimum standards that state insurance laws and regulations were required to meet or else face preemption by federal law. The most recent challenges to the state insurance regulatory system are arguably the most significant, as well, showing further erosion of state primacy. Both the Patient Protection and Affordable Care Act (“PPACA”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) are material forays of federal law into the insurance industry.

2. Role of the National Association of Insurance Commissioners in coordinating and serving state insurance regulators :

National Association of Insurance Commissioners (NAIC)

This non-profit organization plays an important coordinating role in insurance regulation. Insurance is regulated primarily by state insurance departments. These state regulators make up the membership of NAIC. However this organization has no regulatory authority.

Regulatory activities are typically undertaken by state insurance departments are :

a. licensing insurers,

b.licensing insurance personnel,

c. approving policy forms,

d. holding rate hearings & reviewing rate filings,

e. evaluating solvency information,

e. investigating policy holder complaints,

f. performing market conduct examinations,

g. fining insurers that violate state laws and preventing frauds etc.

Duties of a typical state insurance commissioner are :

a. overseeing the state insurance department's operation,

b. promulgating orders,

c. rules and regulations necessary to administer insurance laws,

d. review insurance pricing and coverage,

e. conduct financial and market examinations of insurers and holding hearing on insurance issues etc.

Note : answer of question is copied from some source as I can not write the history of laws on my own.

Thank you, all the best.