Reform the NAIC, don’t replace it with another Washington bureaucracy

An Oct. 20 report on insurance affordability found that the average American’s homeowners insurance premiums now exceed average property-tax bills in two-thirds of U.S. counties. Inflation-adjusted premiums have risen a whopping 45 percent over the past decade.

For families already struggling with the increasingly expensive everyday cost of living, this is another burden they can hardly afford.

The growing insurance affordability crisis raises important questions about oversight of an industry on which Americans depend to protect their homes, businesses, livelihoods and well-being.

One institution especially deserving of scrutiny is the National Association of Insurance Commissioners (NAIC). Founded in 1871, the NAIC is a nonprofit organization governed by insurance regulators from all 50 states, the District of Columbia, and five U.S. territories. It helps states coordinate insurance oversight, develop model laws, establish financial solvency standards, and share regulatory information.

The NAIC provides considerable value, but the organization has transparency and accountability problems that should concern anyone who believes regulatory authority must ultimately answer to the public. Its accreditation process also places substantial pressure on states to adopt particular model laws and standards, even though the organization itself is not directly accountable to voters.

An Aug. 28 Wall Street Journal column from the Southwest Public Policy Institute highlighted the NAIC’s opaque accreditation process, limited financial disclosures, and dependence on revenue from the insurance industry — the very industry whose standards it writes.

According to the U.S. Government Accountability Office, the organization generated $161.4 million in revenue in 2024, approximately 94 percent from industry-related sources. Despite its nonprofit status, it has been exempt from filing IRS Form 990 since 1955 , so financial details like executive compensation are not publicly disclosed.

The impetus for creating this cooperative, nonprofit structure: In 1944, the U.S. Supreme Court ruled in U.S. v. North-Eastern Underwriters Association that federal anti-trust laws applied to the insurance; thus, under the auspices of the Commerce Clause , Congress would set the industry’s regulations. In response, Congress passed the 1945 McCarran-Ferguson Act , which assigned back to the states the primary authority for regulating the industry. Ever since then, there has been tension between policymakers who want to centralize the regulatory regime and those who seek to preserve the states’ authority.

Clearly, there is room for reform. That said, policymakers should not view the need for reform as a call to usurp the states’ authority. Replacing state-based regulation with a centralized federal system would create additional problems rather than solve existing ones.

Insurance markets are fundamentally different across America. For example, from hurricanes to tornadoes to floods to earthquakes and wildfires, Americans require different insurance products, pricing considerations, mitigation strategies, and regulatory responses from one state to another.

A Washington-centered system could struggle to accommodate state-by-state differences. State regulators are closer to factors that shape their insurance markets. Federalism allows states to respond to local circumstances while learning from one another.

The NAIC makes effective cooperation possible. Its accreditation program promotes financial oversight and enables regulators to rely on examinations conducted by other states, reducing unnecessary duplication and expense.

A Government Accountability Office review acknowledged these benefits. Nevertheless, the review identified transparency issues that warrant attention.

Unfortunately, concerns about the NAIC have become an argument for expanding federal regulatory authority. Sen. Elizabeth Warren (D-Mass.) has questioned the organization’s oversight of insurers and private-equity investments. Such scrutiny can serve a legitimate purpose, but shortcomings in state coordination do not automatically mean that federal control would produce better results.

Rather than pursuing a federal approach, policymakers should examine reforms that strengthen accountability while preserving state authority.

Michigan offers a practical example. Under Section 500.478 of the Michigan Insurance Code , the state requires annual NAIC disclosures to state insurance officials and legislative committees, including executive compensation, accreditation requirements, and information about public access to deliberations. Other states could adopt comparable requirements.

Additional reforms should include greater transparency in accreditation proceedings, stronger conflict-of-interest safeguards, legislative oversight of model standards, and reconsideration of the NAIC’s Form 990 exemption.

Americans need affordable, reliable insurance and regulators who understand their communities. They also deserve transparency from organizations shaping the rules governing their coverage. Reforming the NAIC can advance both objectives without creating another layer of federal bureaucracy .

Kent Kaiser, Ph.D., is secretary/treasurer of the Domestic Policy Caucus .