NAIC decries the member vote to end IAIS ‘observer’ status

Oct. 27, 2014, Washington — The National Association of Insurance Commissioners (NAIC) expressed strong opposition to the International Association of Insurance Supervisors (IAIS) vote to end observer membership status for non-members. The vote, which took place in closed session at the annual general meeting on Oct. 25 in Amsterdam, amended IAIS bylaws to end this observer status, which included participation in some IAIS meetings.
The IAIS is creating new stakeholder consultation procedures which have not at all been embraced by the once and former observers.
Ahthough the vote occurred in a closed session, the NAIC delegation voted against the measure, while the Federal Insurance Office (FIO) voted for it and the Federal Reserve Board representative allegedly left the room.
After attempts to work together, the schism on international supervisory issues among U.S. representatives is still defined by issues such as this.
“I am extremely disappointed in the outcome of Saturday’s vote to end observer status at the IAIS,” said Adam Hamm, NAIC President and North Dakota insurance commissioner and IAIS member. “Observers run the range of consumer advocates, insurance experts, and industry representatives – all of whom have critical input to share on the real-world consequences of decisions made by regulators. Shutting them out of the official process in favor of ‘invite only’ participation deprives IAIS members and stakeholders alike and could diminish the credibility of decisions made at the IAIS,” said Hamm, who also sits on the US Financial Stability Oversight Council (FSOC.)
ALthough the FSOC role does not assure one of membership, the fact that the NAIC members are state regulators does.
Observers, from insurance groups and lobbyists to consumer advocates to the insurance expert on the FSOC have previously spoken out against the change, criticizing the long-anticipated move for lack of access and lack of time to effect any important and long supervisory process of crafting rules — rules that would be eventually applied to insurance companies, and effect regulations, markets and consumers.
“Relegating systemic risk policymakers to only those opportunities afforded to the general public would reduce the likelihood of effective attainment of the IAIS goal of providing a meaningful contribution towards global financial stability,” FSOC Independent Insurance Expert Woodall stated in a comment letter to the IAIS in early September.
Said consumer advocate Peter Kochenburger, executive director of the Law School’s Insurance Law Center,”I would say that the IAIS annual conference in Amsterdam further confirmed the value of stakeholder participation: (1) without any consumer (policyholder) participation the dialogue is either regulators talking only to themselves, or to the industry, with the crucial second party to any insurance transaction, the policyholder, not having a voice (2) as the industry points out, they will be responsible for ultimately following and implementing changes in national (or state) insurance laws and have a knowledge base and stake in participating in its making.”
The new consultation procedures being developed will likely outline how certain stakeholders may participate in portions of some meetings by invitation only as well as the creation of open hearings with stakeholders separate from IAIS meetings.
The Center for Economic Justice (CEJ), run by IAIS observer consumer advocate Birny Birnbaum, said also in a comment letter Sept. 2, the IAIS new, proposed policy for consultation of stakeholders is not a good solution because it “will not ensure all relevant stakeholders are properly consulted because there is no formal consumer participation program or assistance, because the implementation is left to the discretion of the Chair and because there is no formal training for members or committee leadership in implementing public participation policies and procedures.”
Besides being “clearly not transparent,” the proposed ‘standardized framework’ is too short on the required interactions and too long on the options to ensure consistent stakeholder interaction across committees and projects,” Birnbaum wrote.
The IAIS is in part funded by Observer fees and some anticipate that the G-20’s Financial Stability Board (FSB), which is directing many of the IAIS work on international capital standards, may pay the funds now.
“Over the years, the IAIS has benefitted from the input and ideas provided by our observers which not only result in quality end products, but also provide our stakeholders with a better understanding of our work and our development processes,” said Kevin McCarty, Florida insurance commissioner and past NAIC president, who has served in IAIS roles for some years and who serves on the IAIS Executive Committee.
“…we are concerned about changes which will result in less transparency and openness by closing all meetings to stakeholders going forward,” he continued, contrasting the NAIC’s policy of transparency with the IAIS’ plan.
U.S. state regulators are not alone in their concern with the new process. Congress has introduced a bipartisan resolution calling for openness and transparency by the IAIS, the NAIC pointed out in a release.
Dave Snyder of the Property Casualty Insurance Association (PCI), who recently returned from Amsterdam, remarked that”the NAIC vote upholds the views of our federal and state lawmakers and our traditions of openness to all interested parties. On the other hand, the IAIS action is a serious mistake as it will make it more difficult to meaningfully consider the views of all stakeholders. It will also potentially result in flawed standards and guidance that will run into preventable opposition and thereby fail to be implemented.”