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National Association of Insurance Commissioners – Definition

National Association of Insurance Commissioners (NAIC) – Definition

The National Association of Insurance Commissioners (NAIC) is an organization created and governed by the chief insurance regulators from across the 50 states, the District of Columbia and five U.S. territories. The organization is responsible for protecting the interest of the consumers of the insurance industry.

A Little More on What is the National Association of Insurance Commissioners

The association supports the state insurance regulators in establishing standards and best practices, conducting peer review and coordinating their regulatory oversight. The central resources of the NAIC along with the members of the association develop the national system of state-based insurance regulation.

The NAIC was formed in 1871 with a goal of developing uniform financial reporting standards for insurance companies. The headquarter of NAIC is located in Kansas City.

The NAIC assists the insurance regulators, individually and collectively, in serving the public interest and achieving certain fundamental regulatory goals. They aim to do it in a responsive, efficient and cost-effective manner, consistent with the wishes of its members. The goals of the NAIC are,

  • Protect the public interest;
  • Promote competitive markets;
  • Facilitate the fair and equitable treatment of insurance consumers;
  • Promote the reliability, solvency and financial solidity of insurance institutions; and
  • Support and improve state regulation of insurance.

The members of the NAIC are the elected or appointed state government officials who are responsible for regulating the insurance companies in their respective state or territory. These officials along with the other staffs of their department regulate the conducts of the insurance companies and insurance agents. The President, Vice President and Secretary-Treasurer of the NAIC are elected each year by its members in a secret ballot. It has four operating zones: Northeastern, Southeastern, Midwestern and Western. Each zone has their own chair, vice chair, and secretary and they are the member of the NAIC’s executive committee.

The NAIC has different divisions to run the organization efficiently. The divisions are executive, financial regulatory service, human resources, and internal services, information technology group, regulatory services, legal services, communications/ media relations, member services, and technical services.

Each of these divisions works in their respective fields in order to provide an overall support to the organization in developing and administering the regulations for the insurance industry.

References for National Association of Insurance Commissioners (NAIC)

Academic Research on National Association of Insurance Commissioners (NAIC)

Insurance regulation in the United States: regulatory federalism and the National Association of Insurance Commissioners, Randall, S. (1998). Fla. St. UL Rev.26, 625.

The National Association of Insurance Commissioners (NAIL) Medical Malpractice Closed Claim Study 1975-1978: A review of dermatologic claims, Altman, J. (1981). Journal of the American Academy of Dermatology5(6), 721-725. The first major uniform survey of its kind nationwide is  The National Association of Insurance Commissioners (NAIL) Medical Malpractice Closed Claim Study 1975-1978. The reviewed claims were a total of 71, 782 during a 3½-year period. Almost one third of these claims included indemnity payments. Dermatology closed claims with indemnity payments were reviewed, that were included in the study showed that dermatologists accounted for 127 claims that represented 0.7% of total paid claims, with a total payments of $2,549,125 which represents 0.6% of total indemnity dollars paid.

Interstate professional associations and the diffusion of policy innovations, Balla, S. J. (2001). American Politics Research29(3), 221-245.Scholars find that policy innovations go through the state in a  systematic approach. The roles that both individuals and institutions play in the promotion of diffusion has not been generally examined. Interstate professional association create institutional foundations for the dissemination and development of innovations by state officials with regulations over certain policy areas. The hypothesis is tested by examining the state determinants adoption of the Health Maintenance Organization (HMO) Model Act. The act is a comprehensive set of laws, developed by the National Association of Insurance Commissioners (NAIC).

The national association of insurance commissioners‘ closed claim study, Brunner, E. A. (1984). International anesthesiology clinics22(2), 17-30. The first major uniform survey of its kind nationwide is  The National Association of Insurance Commissioners (NAIL) Medical Malpractice Closed Claim Study 1975-1978. The reviewed claims were a total of 71, 782 during a 3½-year period. Almost one third of these claims included indemnity payments. Dermatology closed claims with indemnity payments were reviewed, that were included in the study showed that dermatologists accounted for 127 claims that represented 0.7% of total paid claims, with total payments of $2,549,125 which represents 0.6% of total indemnity dollars paid.

Insolvency experience, risk-based capital, and prompt corrective action in property-liability insurance, Cummins, J. D., Harrington, S. E., & Klein, R. (1995). Journal of Banking & Finance19(3-4), 511-527. The extent of accuracy of the risk-based capital formula for insurers of property liability was brought in 1993 by the National Association of Insurance Commissioners (NAIC) and is analyzed by this paper. An analysis-logit is conducted on a large sample of insolvent and solvent insurers through the period 1989–1993. It was discovered that predictive accuracy is very low when the ratio of NAIC risk-based capital to real capital is the sole independent variable in the logit analysis. Indeed, accuracy is greatly increased when the components of the formula and variables related to organizational form and firm size used as aggregators.

Reflections on the National Association of Insurance Commissioners and the Implementation of the Patient Protection and Affordable Care Act, Jost, T. S. (2010). U. Pa. L. Rev.159, 2043. Congress granted NAIC, based on a request, for a role in implementing PPACA. Congress gave NAIC authority and responsibility. NAIC carried out the responsibility placed on it. A regulatory product was the result that has increased PPACA’s likelihood of making a positive change in the  American health care financing system.

From the field: The politics of the Health Insurance Portability and Accountability Act, Atchinson, B. K., & Fox, D. M. (1997). Health Affairs16(3), 146-150. New issues for the implementation of states and insurance commissioners was raised by The “Kassebaum-Kennedy” act. It is probably the most important Federal Health Care Reform in a generation.

The association between external monitoring and earnings management in the property‐casualty insurance industry, Gaver, J. J., & Paterson, J. S. (2001). Journal of Accounting Research39(2), 269-282. This paper reviews the association that occurs between earnings management and external monitoring by property-casualty insurers. Previous works by Petroni and Beasley (1996) is extended by expanding the set of external monitors which includes actuaries and auditors. It is investigated if certain auditor-actuary pairs are associated with the lower understatement of the loss reserve account by insurers that are financially struggling.  The data comprises of loss adjustments reported by 465 insurers of property casualty for reserves set up in 1993. The results show that under-reserving by weak insurers is taken off when auditors and actuaries are used by the firm from six large accounting firms.

An Economic Overview of Risk-Based Capital Requirements for the Property-Liability Insurance Industry., Cummins, J. D., Harrington, S., & Niehaus, G. (1993). Journal of Insurance Regulation11(4). This article gives an overview of economic risk-based capital requirements for the property-liability insurance firms. It also provides a conceptual framework that policymakers can use to analyze proposed property liability based capital systems. A property designed risk capital system’s goal is to provide incentives for high risk taking by insurers, bring in cost that is not necessary on policyholders and insurers that are financially sound and also bring low market capacity. Avoiding these potential issues is for the proposed risk-based system to be thoroughly tested before implementation to ensure optimum functionality.

Adverse selection in health insurance markets? Evidence from state small-group health insurance reforms, Simon, K. I. (2005). Journal of Public Economics89(9-10), 1865-1877. In the past decade, there have been witnesses of major changes in state regulations governing the sale of health insurance to small business owners. There were restrictions by the state to measure the ability to differentiate between customers that are high and low-risked. It is due to concerns about the low rate of coverage for workers in small organizations, prices, in the small-group market and the lack of federal health reform. Both individual and employer level data was used to test the predictions on the effect reforms has on the health insurance market by the employer.

Meeting the Needs of Elderly Consumers: Proposed Reforms for the National Association of Insurance Commissioners‘ Long-Term Care Insurance Model Act, Radke, B. A. (1993). Elder LJ1, 227.

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