When people open their insurance bills and wonder why premiums keep climbing, they’d never think to blame an obscure nonprofit organization based in Kansas City. But they should.
A nonprofit organization called the National Association of Insurance Commissioners is responsible for the rules that ultimately affect consumers’ insurance premiums. These rules and standards govern consumers’ health, home, auto, life, and retirement insurance. Premiums for these insurance products have been rising at historic rates in recent years — far outpacing wage growth.
Some of the rise in premiums may be attributed to the NAIC’s burdensome rules that states automatically enact into their own insurance codes. As such, a standard adopted in a Kansas City boardroom can become binding in a state with no legislative due process.
One example of this is the NAIC’s new stringent capital rules. They apply to insurers that invest in certain bonds and private credit investments. The rules force insurers to hold more cash in reserve. If that money is sitting in cash, it’s not being invested in higher-yielding assets that can help fund annuity payouts and life insurance benefits. Insurers can only absorb so much of that squeeze before it shows up in a family’s bill, whether someone is 30 years from retirement or already living off one. Either way, it’s a hidden tax on retirement savings, and nobody voted for the people who imposed it.
The NAIC adopts these rules without a cost-benefit analysis, economic impact studies, or price projections that every federal and state regulator is expected to produce. Other regulators have to show their math. NAIC doesn’t, and it’s costing consumers every day.
The NAIC gets away with this because it is a walking conflict of interest. A recent report from the Government Accountability Office found that about 94% of its revenue comes from fees paid by the insurance companies it regulates. An organization funded by the industry it oversees has every incentive to write rules that entrench incumbents and generate more fee revenue over policies that could produce lower prices.
GAO also confirmed that since 1955, NAIC has skipped filing its federal tax return — called an IRS Form 990 — which virtually every other nonprofit in America is required to file. Without a 990, the NAIC does not disclose executive compensation — a glaring lack of transparency.
Perhaps most troubling is the effect on states that can least afford it. The GAO report discusses the NAIC’s accreditation system, which can effectively compel a state to adopt capital and product standards even if that state’s insurance regulator disagrees with the NAIC’s proposal. A commissioner who votes “no” in the room can still watch that same standard become binding law back home within the year, because losing accreditation would cut his state’s insurers off from doing business elsewhere in the country.
Accreditation reviews happen behind closed doors and are never made public, so a handful of NAIC staff and a rotating cast of commissioners end up setting rules for the whole country, with no public record of how or why. Families in affordability-stressed markets are left with standards written by anonymous industry stakeholders, with no mechanism to seek relief when those mandates drive up the cost of coverage at home.
The lack of accountability and transparency is taking a toll on consumers’ insurance premiums and needs to be rectified.
The solution is to make the NAIC accountable to state lawmakers. Legislators deserve to know exactly what regulatory proposals the NAIC is developing and how it plans to work with state insurance commissioners to implement them. This can be done by requiring the NAIC to file annual reports, testify before relevant legislative committees, abide by a notice-and-comment rulemaking process that includes a cost-benefit analysis, and hold relevant meetings publicly to shine light on any unwanted conflicts of interest or cronyism.
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At the federal level, the IRS should require the NAIC to file a Form 990. This does not require an act of Congress — the Trump administration could do this on its own. This would ensure that the NAIC discloses executive compensation and offers a modicum of transparency. This would be a positive first step to bringing insurance premiums back down toward reality.
Families deserve insurance markets that work for them, not for unaccountable insiders writing the rules behind closed doors. If policymakers want to tackle affordability, look no further than the NAIC. This nonprofit is ripe for reform, or better yet, an overhaul.
Eric Ventimiglia serves as executive director of Pinpoint Policy Institute, a nonpartisan, nonprofit educational organization dedicated to promoting and defending the essential pillars of American prosperity.