Last Updated 4/19/2022
Issue: The NAIC model law development process helps provide uniformity while balancing the needs of insurers operating in multiple jurisdictions with the unique nature of state judicial, legislative and regulatory frameworks. From a consumer protection perspective, the value of a state-based regulatory system is the ability to tailor state laws and regulations to meet the needs of resident consumers. However, there is recognition that there are some areas where uniformity and consistency across state borders is beneficial to all. It is primarily through the states’ adoption of NAIC model laws and regulations that the legal framework for insurance regulation has been largely harmonized throughout all the states.
Overview: In 2007, the NAIC changed the way model laws and model regulations were developed. The criteria for development of a model law or regulation now involve a two-step test:
- The subject matter of the model law or regulation must call for a minimum national standard or require uniformity among the states.
- The NAIC must dedicate significant state insurance regulator and NAIC staff resources to educating, communicating and supporting the adoption of the model law or regulation.
When an NAIC committee, task force or working group decides to address an issue that does not meet the two-step test, it can instead develop a guideline. A guideline is simply an insurance regulatory best practice. It can be used by the states as the basis for a law, regulation or even a bulletin.
If an NAIC committee, task force or working group identifies a topic it believes warrants amending an existing model or developing a new model, there are certain steps it must take. The NAIC group must have approval of the parent committee and the Executive (EX) Committee before devoting resources to the development or drafting of a model law, unless the model is mandated by federal law or required for consistency or compliance with federal law. If the model law development request is granted, the group will begin drafting the model law. The model law is drafted by state insurance regulators, with assistance from NAIC staff. Throughout the drafting process, public meetings are held and input is sought from interested parties, including industry representatives and consumer groups. Work on the model law must be completed within one year, plus one national meeting, from the time it is authorized by the Executive (EX) Committee.
Once drafting work is complete, the group developing the model law must meet two more thresholds before the draft model is adopted:
- The group must obtain a two-thirds majority vote of the responsible parent committee.
- The final hurdle is a minimum two-thirds majority vote of the NAIC Executive (EX) Committee/Plenary in favor of adoption of the model law. With an affirmative vote, an insurance commissioner commits to devoting resources to implement the model in his or her state or jurisdiction.
Once the NAIC members have adopted a model law, it becomes a priority of the NAIC. The goal is to encourage legislatures or regulatory bodies to adopt the model law, with as few changes as possible, in a majority of states within three years after its adoption by the NAIC members.
When issues arise where a proposed model law does not meet the two-step test, a group can proceed to develop a guideline to address the regulatory issue. The issue must be consistent with the formal charges to the group. Guidelines are not considered to be equivalent to model laws of the NAIC. Rather, they are considered regulatory best practices.
Model laws and guidelines are an important part of the national system of state-based insurance regulation. The model laws, when coupled with the NAIC Accreditation process, address areas where uniformity and consistency across state borders is beneficial to all.
Status: The eight NAIC Standing Committees and their subordinated Task Forces and Working Groups handle the work to develop and approve model laws. However, the NAIC Government Affairs team regularly works with state legislators and interested parties to discuss any issues of common interest to state insurance regulators and state officials.
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NAIC Model Laws: A Tutorial
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