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What is the NAIC?

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If you have ever compared insurance providers and looked specifically into each company’s complaint records, you may have come across the “NAIC.” Known officially as the National Association of Insurance Commissioners, this organization was created for the purpose of setting proper standards and establishing best practices for the insurance industry in the U.S. 

The NAIC governs all forms of insurance, including life, health, disability, long-term care, property-casualty, liability and other miscellaneous types of coverage. It also provides additional support to insurance industry regulators, as well as education and resources for consumers. Those with a complaint related to an insurance-related transaction can voice their grievances to the NAIC. In this article, we will look at the structure and purpose of the NAIC, and its history and current functions. 

What is the NAIC?

The NAIC is a nonprofit, nonpartisan entity consisting of the head insurance regulators of each of the 50 states, the District of Columbia and all five of the U.S. territories: American Samoa, Guam, the Northern Mariana Islands, Puerto Rico and the Virgin Islands.

The insurance commissioner in each state oversees all insurance activities relating to any type of insurance and is ultimately responsible for overseeing all of the insurance related transactions that are conducted in the state. Unlike investments, which are regulated at the federal level by the SEC, the insurance industry in the U.S. is regulated primarily at the state level. There is no federal agency that oversees insurance transactions. For this reason, the NAIC ultimately acts as the front line of insurance regulation in the U.S. 

The state insurance commissioner is responsible for ensuring that insurance consumers are treated fairly, and that all insurance-related products meet the standard industry criteria and deliver on what they promise. The NAIC allows individual state insurance commissioners to coordinate their regulation efforts with the commissioners in other states and establish a relatively uniform set of standards for the industry. 

History of the NAIC

The NAIC was created in 1871 by state insurance regulators with the intent to standardize the regulation of insurers who conducted business in multiple states, and to promote the uniformity of financial reporting by insurers from one state to another. 

For most of the first half of the 20th century, there was an ongoing debate about whether the insurance industry should be regulated at the federal or the state level. In 1944, the Supreme Court decision ruled in a case involving an insurance underwriting organization that Congress should regulate the insurance industry. The Supreme Court based its decision on the Commerce Clause of the Constitution, which gives lawmakers regulatory authority over interstate and international commerce. 

But this ruling was effectively overturned a year later when Congress passed the McCarran-Ferguson Act, which almost completely exempted the entire insurance industry from any form of federal regulation, including the antitrust laws. The insurance industry has thus been regulated largely at the state level by the NAIC to this day. 

How the NAIC works

The primary function of the NAIC is to assist state insurance regulators with making sure that the public’s best interests are effectively served and achieving a stated list of goals. Those goals include protecting the public interest, promoting free and competitive markets, facilitating the fair treatment of insurance consumers, protecting the financial solvency and reliability of insurers and supporting and improving insurance regulations at the state level. These goals are accomplished by the following departments:

Communications/Media Relations – Facilitates communications for NAIC members through various avenues of media and networking. Also promotes insurance education for consumers through insure U.

Executive – Supports the NAIC and its members. This division includes the finance department and the business strategy, risk management and compliance department.

Financial Regulatory Services (FRS) – Provides technical expertise in the mathematical and actuarial areas of financial regulation.

Human Resources and Internal Services – Contributes to the NAIC’s internal operations, including human resources, document and the handling of records.

Information Technology Group (ITG) – Provides information technology products and services that support state-based insurance regulation.

Legal – Monitors developments in insurance law and provides advice to state insurance regulators.

Member Services – Helps members and staff with education and training, planning meetings and using library resources.

Regulatory Services Division – Supports NAIC members and staff with actuarial & statistical services, market regulation, and financial regulatory services.

Technical Services – Provides overall technology support.

Why the NAIC matters

The NAIC is the primary recipient of customer complaints pertaining to the insurance industry. Consumers who are having trouble getting a payout on their policies, or feel that they are being treated unfairly by their insurers, can reach out to the NAIC and voice concerns. The NAIC provides critical regulatory oversight to the insurance industry. Ultimately, it provides avenues of communication and interpretation between consumers, state insurance regulators and insurance companies. 

The NAIC and consumer complaints 

The NAIC offers a plethora of resources that consumers can use to gather information about a specific insurance company, such as whether the company has had a lot of complaints. The consumer information search tool allows consumers to do this. There are also other links on the NAIC website that allow consumers to directly file a complaint or try to find a particular life insurance policy. 

The NAIC tracks consumer complaints and matches them up with the companies that they are made against. They assign a score to each company based on the number of complaints that it receives. The score reflects the percentage of customers who have made complaints against the company.

What are NAIC codes?

NAIC carrier codes are 5-digit numerical codes assigned to each insurance group as well as each individual insurer. The codes help the NAIC to classify the various types of insurance companies into separate groups. For example, the NAIC code for Nationwide Mutual Life Insurance Company is 23787, with a group code of 140. 

What is an NAIC number?

An NAIC number is simply the carrier code that is assigned to an insurance carrier. NAIC codes and numbers refer to the same identifying code assigned to each carrier.

The takeaway

The NAIC performs many functions for the insurance industry. Some of its primary tasks include:

  • Protecting and educating consumers
  • Establishing industry standards
  • Promoting uniformity in state insurance regulations
  • Resolving disputes

This governing body of commissioners will likely remain as the primary overseers of the insurance industry for the foreseeable future.

The NAIC has overseen the insurance industry for almost 150 years. Its website contains a myriad of resources for consumers and insurance professionals as well as state insurance regulators. It governs all insurance-related transactions that transpire within each state and seeks to promote high industry standards and provide an acceptable degree of uniformity in state insurance regulations.

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