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WASHINGTON -- In a strongly worded letter sent today, the nation's leading consumer advocates called on all 50 governors to rescue their insurance commissioner's national trade association from the clutches of industry control by giving it independent funding.
"As we move toward the millennium, it is clear to the consumer advocacy community that NAIC cannot be an effective or trustworthy organization without independent funding," states the letter, signed by Ralph Nader and representatives from Consumers Union, Consumer Federation of America and U.S. PIRG. These groups, representing millions of consumers, indicated that the loss of a strong and independent National Association of Insurance Commissioners would be devastating to today's already beleaguered insurance consumers.
At the center of the storm is the National Association of Insurance Commissioners (NAIC), organized over a hundred years ago to coordinate efforts among the state insurance regulators and bring some level of uniformity to the regulation of insurance. Although it is comprised of state insurance commissioners from the 50 states and territories, it depends on the insurance industry for the bulk of its funding in the form of fees charged for data base usage, publications and other services. The association serves a number of functions, including the development of model laws and providing technical assistance to the state insurance departments.
"We call upon you, as the leader of your state, to inject some balance into a system where the insurance industry is setting its own rules, dictating policy and dominating the weak oversight structure," the consumer groups and Nader write. "Reform should begin with developing a funding structure for the NAIC that promotes independence and freedom from industry control."
The very existence of NAIC has staved off calls to move policing of the insurance industry from the state level, where it now resides, to the national level. However, in the wake of strong arm tactics by insurance industry officials to bury an explosive report documenting discriminatory industry practices in minority communities, NAIC independence has come under attack. Several major companies, including Allstate, State Farm and Farmers Insurance, threatened to withdraw their financial support in order to stop NAIC activities they didn't like, including the report.
To restore financial independence to the organization, the consumer groups are recommending 4/10-ths of one percent of the current revenues already assessed on the insurance industry by state governments be reallocated to underwrite a reformed NAIC. In 1996, state governments, nationwide, collected $9.7 billion in revenues, fees and fines from the insurance industry. The consumer groups and Nader believe this money needs to be used for consumer protection, not to meet the needs of the insurance industry.
Thursday's consumer letter warned the Governors that "calls for federal regulation of insurance will grow louder" if substantial reforms for their insurance commissioner's organization aren't embraced soon. By taking strong action now, the nation's governors can protect their state's control over local insurance practices.
Insurance industry trends where a coordinated response by the states is necessary include: abusive sales practices, mergers, internet sales, the globalization of insurance and financial services restructuring,
NOTE: The full text of the letter can be obtained by dialing the CU Faxback line at 202/462-7705 and asking for document 3803.
