Marketplace & Regulation
Other Regulatory Organizations
National Association of Insurance Commissioners
All state insurance commissioners or directors are members of the National Association of Insurance Commissioners (NAIC). This organization has standing committees that work regularly to examine various aspects of the insurance industry and to recommend appropriate insurance laws and regulations. The NAlC has four broad objectives:
¨ to encourage uniformity in state insurance laws and regulations;
¨ to assist in the administration of those laws and regulations by promoting efficiency;
¨ to protect the interests of policyowners and consumers; and
¨ to preserve state regulation of the insurance business.
The NAIC has been instrumental in developing guidelines and model legislation that help ensure that the insurance industry maintains a high level of public trust by conducting its business competently and fairly. This group also develops standards for policy provisions, helping ensure that policies become more uniform across the country. The NAIC has no enforcement powers. Notable among the NAIC's accomplishments was the creation of the Advertising Code and the Unfair Trade Practices Act, which have been adopted in some form by every state.
A principal problem facing states in the past was regulating misleading insurance advertising and direct mail solicitations. Many states, including Florida, now subscribe to the Advertising Code developed by the NAIC. The Code specifies certain words and phrases that are considered misleading and are not to be used in advertising of any kind. The Advertising Code requires full disclosure of policy renewal, cancellation and termination provisions. Other rules pertain to the use of testimonials, statistics, special offers and the like.
Unfair Trade Practices Act
The McCarran-Ferguson Act exempts insurance activities from federal anti-trust laws – “to the extent they are governed by state law.” Shortly after passage of McCarran Ferguson, each state passed laws to address this concern and preserve state regulation of insurance. Most jurisdictions, including Florida, have adopted some version of the NAIC's Model Unfair Trade Practices Act. This act gives state regulatory officers the power to investigate insurance companies and producers, to issue cease and desist orders and to impose penalties on violators. The act also gives officers the authority to seek a court injunction to restrain insurers from using any methods believed to be unfair or deceptive. Included in the context of unfair trade practices are misrepresentation and false advertising, coercion and intimidation, unfair discrimination, and inequitable claims settlements.
Other Model Laws
The NAIC has been instrumental in crafting model legislation that most states have enacted. Recently Congress has relied on the NAIC to promote greater nationwide uniformity in the fields of Medicare supplemental insurance, long-term care policies and state reciprocity of agent licenses. One recent NAIC Model law of is of particular interest to agents selling annuities: the Suitability in Annuity Transactions Model Regulation, which addresses agent training and supervision. This model law focuses on "senior consumers" and requires agents to adequately document the suitability of their recommendations to those age 65 or older. The NAIC is in the process of expanding the scope of this law to cover all consumers regardless of age. To date, Florida has adopted a version of the "senior customer" version of this model act — the details of Florida's law are covered in Chapter 6.
Insurance Marketplace Standards Association (IMSA)
The purpose of the Insurance Marketplace Standards Association (IMSA) is to promote high ethical standards in the sale of individual life insurance, annuity products and long-term care insurance by its member companies. With more than 200 voluntary member insurance companies, IMSA demonstrates the firm commitment to ethical market conduct that a large portion of the insurance industry has made. IMSA delineates its standards of ethical market conduct through six principles: each of which is supported by several codes. In order to join IMSA, an insurance company must go through two assessments (one internal and one third-party) to demonstrate that it upholds these codes. This process must be repeated every three years. The principles and codes demand that each member company promote ethical standards to its producers.
NAIFA and NAHU
The National Association of Insurance and Financial Advisors (NAIFA) and the National Association of Health Underwriters (NAHU) are organizations of life and health insurance agents that are dedicated to supporting the life and health insurance industries and advancing the quality of service provided by insurance professionals. Each organization issues a Code of Ethics that stresses the high professional duty expected of underwriters toward their clients, as well as to their companies, and emphasizes that only by observing the highest ethical balance can conflict between these two obligations be avoided.
The Florida Association of Insurance and Financial Advisors (FAIFA) fulfills a similar function in Florida. FAIFA’s Code of Ethics specifically addresses misrepresentations, twisting, rebating, and defamation. FAIFA's Code of Ethics has been adopted as part of the Department of Financial Services’ rules:
While technically not a regulatory body in the traditional sense, rating services are private companies that review the financial strength and stability of insurance companies. These are two vitally important factors to potential insurance buyers and to insurance companies themselves. By publishing their assessment of financial strength, the ratings organizations help market forces guide insurance company decisions and operations.