Morris Manning & Martin, LLP

NAIC Adopts New Model Law Framework

07.02.2007

The NAIC recently adopted a new model law development framework which its supporters hope will streamline the NAIC model law adoption process and better align the process with the NAIC’s membership priorities and initiatives.

Going forward, no NAIC model law should be promulgated unless it meets the following two-pronged test:

  1. The issue that is the subject of the Model Law necessitates a national standard and requires uniformity amongst all states; and
  2. Where NAIC members are committed to devoting significant regulator and association resources to educate, communicate and support a model that has been adopted by the membership. (emphasis in original)

Further, no committee, task force or working group should take any action or devote any resources to the development or drafting of a model law until it receives approval of the parent and executive committees that its proposals meet the above two-pronged test. If a proposal does not meet the two-pronged test, the committee may still proceed with efforts to address the issue through guidelines which do not rise to the level of a model law. Guidelines are considered regulatory best practices such as regulations, handbooks and/or bulletins.

In addition, the revised framework seeks to impose timing requirements that would limit the amount of time a model law spends in committee. For example, any model law must be developed within one year from the date of approval to begin drafting or revising by the executive committee. While this one-year requirement can be waived by the working group’s parent committee upon a showing of good cause, it nonetheless evidences an intent by the NAIC to speed up the development of model laws. A model law will only be adopted if at least two-thirds of the responsible parent committee has voted to adopt the model law and then will only be adopted by the NAIC by the executive/plenary committees by a similar two-thirds majority vote. At the executive/plenary level, a member is supposed to vote based on whether he or she will make efforts to have the model law introduced in his or her state legislature. This requirement shows the NAIC’s renewed focus on not only quickly passing model laws but then also working to have those model laws adopted by state legislatures. In fact, once a model law is adopted by the NAIC, the goal is to have it adopted by a majority of states within three years. The NAIC plans to track the status of state adoption on a quarterly basis at the NAIC Plenary Committee.

The new framework also takes into account existing model laws that were previously adopted by the NAIC. Under the framework, the executive committee is tasked with undertaking a review of existing model laws that have been adopted in less than a majority of the states to determine if the model law meets the two new criteria. If the executive committee determines that the existing model law does not meet the two criteria, then it will be reclassified as a guideline rather than a model law. However, if the executive committee determines that an existing model law does meet the two criteria, it will then be a priority of the NAIC to pursue uniform adoption in the remaining states.

It is unclear how the revised framework will ultimately impact the successful adoption of NAIC model laws and their subsequent passage in state legislatures. Left unaddressed is a frequent criticism of the NAIC process in that stakeholders and legislators themselves are largely left out of the process. Bills are passing model legislation in a majority of states within three years also calls into question the number of model laws that can be passed by the NAIC at any one time if in passing a model law entails a commitment of a substantial amount of resources on a state department of insurance level towards lobbying and educating home state legislators. Also unclear is what effect the new framework will have on blunting criteria calling for greater federal involvement in the insurance industry.

Tony Roehl is an associate in the firm’s insurance and corporate groups. His principle areas of concentration are insurance regulation and insurance company financial matters. Tony received his bachelor’s degree from the University of Florida and his law degree from the University of Michigan.