National Association of Insurance Commissioners (NAIC)

The dynamic landscape of the insurance industry requires a high level of regulation to monitor insurer solvency, promote consumer protection and facilitate consistency among states. Because the insurance industry, and therefore the annuity marketplace, is regulated by the states, the NAIC strives to provide a level of standardization through accreditation and model laws.

The National Association of Insurance Commissioners was established in 1871 to allow for the oversight of the insurance industry at the state level. The member-driven organization sets the standards in the insurance industry and supports state insurance commissioners.

The mission of the NAIC is to assist the state insurance regulators, individually and collectively, in serving the public interest and achieving the following fundamental insurance regulatory goals in a responsive, efficient and cost effective manner, consistent with the wishes of its members.

The NAIC represents all 50 states, the District of Columbia and five U.S. territories and achieves its mission through peer reviews, analytics, market data and collaboration among task forces, working groups and state insurance commissioners.

In 2018, the NAIC launched State Ahead, a blueprint for addressing the current state of the insurance sector. State Ahead was intended to update the existing regulatory framework and develop new policy and model laws to align with the challenges that members had identified in their own markets.

The State Ahead “foundational pillars, core three themes and goals” target these issues as the basis of the NAIC’s strategy.

Source: National Association of Insurance Commissioners

The National Association of Insurance Commissioners serves to provide standardization and consistency within the insurance industry while accounting for the differences among the states’ legislatures and regulations.

Because of these differences, state insurance departments require a degree of flexibility so they can operate efficiently while simultaneously adhering to peer-reviewed and accepted best practices.

This is where model laws and accreditation come in.

According to the NAIC, model laws must satisfy a two-pronged test. They must first establish a “minimum national standard.” Then the members must agree to dedicate the resources needed to support the law.

If the measure doesn’t meet these criteria, the working group or task force can submit it as a guideline instead.

Model laws and guidelines, along with accreditation — NAIC certification affirming that a state’s insurance department is in compliance with industry standards — allow the NAIC to assess and verify each state’s ability to oversee the financial status of insurance companies.

Because annuities are insurance products, the National Association of Insurance Commissioners regulates all types of annuities. In addition to the NAIC’s oversight, variable annuities are regulated by the Securities and Exchange Commission and the Financial Industry Regulatory Authority. This is because variable annuities, unlike fixed annuities, are classified as securities.

Protecting annuity and life insurance consumers is a fundamental responsibility of the NAIC. The association developed the Insurance Regulatory Information System (IRIS), a database of insurance companies, to provide state insurance departments with data on each company’s financial strength.

By alerting state commissioners to financially unstable insurers, the NAIC strives to prevent consumers from purchasing annuities from insolvent companies.

The Life Insurance and Annuities (A) Committee is a subgroup of the NAIC that handles issues with life insurance and annuity products. The committee comprises several working groups, including the Annuity Disclosure (A) Working Group, the Annuity Suitability (A) Working Group and the Retirement Security (A) Working Group.

Collectively, these subgroups review and revise annuity model regulations and make recommendations in alignment with the NAIC’s mission and initiatives.