What is the NAIC and why it matters • Benzinga
NAIC means “The National Association of Insurance Commissioners”. It was created to provide a standardization process for insurance companies in all 50 states, Washington, DC and five US territories: Puerto Rico, Guam, American Samoa, Northern Mariana Islands and the Virgin Islands.
How the NAIC work and why is it necessary? The NAIC standardizes insurance market practices and provides resources to potential insurance customers that some companies may be reluctant to provide. It acts as a kind of checks and balances so that the consumer is protected and has protection against insurance companies who might try to take advantage of the customer without guarantees in place.
What is the NAIC?
The National Association of Insurance Commissioners was established in 1871. Insurance companies are not currently regulated at the federal level, but each state and territory has its own rules and regulations regarding insurance companies operating within of its borders. That’s why there are representatives from every state and territory as well as DCs in the NAIC.
At the state level insurance commissioners are essentially consumer advocates and ensure that insurance companies under their jurisdiction follow through with the provision of services should a covered event occur. The NAIC uses this model but at the national level, with each state being supported by its chief insurance commissioner. The NAIC is actually a 501(c)(3) non-profit organization; normally with non-profit organisations, the motivation to be as trustworthy and accountable as possible is higher than if a governing body operated as a for-profit organisation. This helps maintain the integrity of the members of the organization and the home insurance, auto insurance, and other types of insurance providers it oversees.
What does the NAIC do?
The primary duty and purpose of the National Association of Insurance Commissioners is to protect the consumer. The organization was formed after the decision of the Supreme Court case Paul v. Virginia, whose verdict established that Congress (a federal agency) could not regulate insurance or create laws regarding insurance. Thus, the NAIC was born to fill the regulatory vacuum in the industry left by this decision.
Because insurance can be a daunting topic despite the fact that most people are encouraged (or required, in the case of auto insurance) to purchase it for protection, the NAIC steps in to provide educational resources and support so that every consumer can understand how insurance works and which plan or company is best for them. If you have questions or concerns about the insurance plans available in your state or territory, the NAIC can also answer them.
A singularly important role of the NAIC is to advise the public on their insurance choices and rights. They publish model rules that insurance companies are expected to follow. They also address public policy whether it is considered more beneficial to the insurance company than to policyholders or those seeking to underwrite policies. The NAIC also sends out bulletins so the public can stay informed and updated on current regulations as well as their rights under the NAIC. States have the ability to pass laws that the NAIC develops with its own lawmakers to further support consumers.
Each state or territory insurance commissioner should ensure that state insurance companies operate within their limits both legally and financially. The NAIC does this at the national level—each insurance commissioner that is part of the NAIC has the support of the entire organization. Since each state and territory is regulated by a national entity, consumers have a better chance of getting equal treatment and information about insurance policies, regardless of where they live.
Why is the NAIC function important?
Contrary to popular belief, the function and regulations put in place by the NAIC actually make it easier for insurance companies to do business in their respective states and territories. By providing laws that each state can enact if it chooses, the pressure of self-legislation is removed. The NAIC’s primary job is to standardize the American insurance industry and protect consumers, but by providing basic standards and regulations for insurance companies, the NAIC ensures that the market is fair and that companies insurance start on an equal footing.
In addition to providing insurance companies with the space to operate in a fair market, the NAIC promotes competition between companies – since the NAIC supports consumers first, it encourages companies to offer the best policies to their clients. The NAIC’s Consumer Support motivates insurers to operate responsibly and balance between acting in their own financial interests and attracting potential policyholders. Periodically, the NAIC may conduct independent internal reviews to ensure that no insurance company is circumventing regulations.
Not only does the NAIC provide accreditation to states that meet its prescribed guidelines; it also peer reviews insurance companies to ensure service standards are met, and it has implemented a standardized financial reporting system so that insurers can provide the best possible service to their policyholders .
Insurance companies must follow the statutory accounting principles created by the NAIC (SAP) when preparing their financial reports for review. Since state law oversees these SAPs, this means that the Chief Insurance Commissioner, a member of the NAIC, will ultimately verify that the assets of the company are sufficiently solvent to be able to continue to provide services to their insureds.
GAAP, Generally Accepted Accounting Principles are industry-specific guidelines that insurance companies must follow in order to provide the basic standard of service to consumers. AMPs are significantly more conservative than GAAP, all in an effort to protect consumers in the often misunderstood realm of the insurance industry.
If you ever have trouble with your state insurance commissioner or insurance company, the NAIC is your advocate. You can file complaints online and their website is easy to read and understand. Information is at your fingertips whether you want to know your rights under the NAIC, check if your insurer is regulated (you can look up their NAIC number which is on your insurance card), or even look up complaints to see if all are relevant to your situation so that you can continue to make informed decisions about your suppliers.
Protection in the insurance sector
The NAIC serves many functions within the insurance industry. Some of the board’s main roles include protecting consumers, setting standards for the many types of insurance you can buy, and resolving disputes between insurance companies and their customers. You can learn more about the function of the NAIC by visiting its website here.
Frequently Asked Questions
What are NAIC states?
As mentioned above, the National Association of Insurance Commissioners is made up of the Chief Insurance Commissioners of all 50 U.S. states, Washington, D.C., Guam, Puerto Rico, Virgin Islands, American Samoa, and Mariana Islands North.
However, there are a few other recently enacted policies worth mentioning because sometimes states adopting these policies may be classified as “NAIC states” in certain contexts. For example, in 2017 the NAIC proposed a new cybersecurity law and so far ten states have enacted it: Alabama, Connecticut, Delaware, Louisiana, Michigan, Mississippi, New Hampshire, Ohio, South Carolina and Virginia. The NAIC also recently accredited the insurance departments of Florida, Arizona and California. This means that these states must comply with stricter insurance regulations and meet minimum consumer protection requirements.
Why was the NAIC created?
Why was the NAIC created?
The NAIC was created to regulate and standardize insurance companies across the United States. Since its founding in 1871, many more states and territories have been added to its collection of representatives. The NAIC set and still sets the standard for insurance company policies and what coverage they offer at what prices. Chief Commissioners who are part of the NAIC conduct peer review of insurance company policies nationwide and establish best practices to follow.
Essentially, the NAIC was created to standardize insurance companies, protect consumers, and create legislation regarding these issues since it was decided prior to the creation of the NAIC by the Supreme Court that Congress could not interfere with the insurance legislation.
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