NAIC Model Insurance Laws

January 8, 2024
NAIC plays an important role in providing standardization of insurance laws

The National Association of Insurance Commissioners (NAIC) plays an important role in helping to provide standardization of insurance laws, while also enabling states to develop legislation that best meets the needs of their residents. According to the NAIC, a state-based regulatory system provides significant value in protecting consumers. Together, the NAIC’s role and that of the states provide a sound insurance regulatory system. Here’s how.

Benefits of a State-Based Regulatory System

Under our nation’s current insurance regulatory framework, the states are able to customize laws and regulations which meet their residents’ needs. Uniformity and consistency in certain areas that cross over state borders benefit everyone. With states’ adoption of the NAIC model laws and regulations, there has been greater agreement and coordination of regulations across the nation. Understanding the evolution of today’s NAIC model laws provides some perspective.

The Evolution of the NAIC Model Laws

While the NAIC had developed laws prior to 2007, it was in that year when the association decided to make some changes as to how model laws and regulations were to be developed going forward. The NAIC developed what is now in place: a two-step test which must meet these criteria:

  1. The subject matter of the model law or regulation must call for a minimum national standard or require uniformity among the states.
  2. The NAIC must dedicate significant state insurance regulators and NAIC staff resources to educating, communicating, and supporting the adoption of the model laws or regulations.

When an issue meets the NAIC’s two-step criteria, it then moves on to the amendment of an existing model law or development of a new model law. To do so, the NAIC must have the approval of the Parent Committee and the Executive Committee, unless federal law mandated it, or it was “required for consistency or compliance with federal law.” Model laws are drafted by state insurance regulators with support from the NAIC staff. Public meetings are held throughout the drafting process to enable and address input from interested parties (i.e., industry representatives and consumer protection groups). All work on a model laws must be completed within one year and one national meeting from the date of authorization by the Executive Committee. Once the new model law draft is complete, there are two additional measures taken before the law is adopted. They are:

  1. The group must obtain a two-thirds majority vote of the responsible Parent Committee.
  2. A minimum two-thirds majority vote of the NAIC Executive Committee/Plenary in favor of the model law must be obtained. If the vote is affirmative, an insurance commissioner must commit to devoting resources to implementing the model law in his/her state or jurisdiction.

The NAIC makes each new model law a priority, encouraging legislatures and regulatory bodies to adopt it with as few changes as possible, and also within three years after its adoption by NAIC members.

Should a new issue develop that does not meet the NAIC’s two-step criteria, the NAIC develops a guideline which essentially provides an insurance regulatory best practice for the states to follow in their potential development of a law, regulation, or advisory bulletin.