A803

ASSEMBLY, No. 803

STATE OF NEW JERSEY

Introduced Pending Technical Review by Legislative Counsel

PRE-FILED FOR INTRODUCTION IN THE 1996 SESSION

By Assemblywoman FARRAGHER and Assemblyman BAGGER

An Act concerning oversight of certain activities of the National Association of Insurance Commissioners, amending various parts of the statutory law and supplementing Title 17 of the Revised Statutes.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. (New section) a. The Legislature finds and declares that:

(1) The National Association of Insurance Commissioners is a private association whose members are the insurance commissioners of the 50 states, the District of Columbia, and the several territories of the United States.

(2) While the original purpose of the National Association of Insurance Commissioners was to assist states in regulating insurance companies, the association has deviated from its legitimate role in recent years, and is now attempting to impose its views regarding insurance regulation on all states through the association's accreditation program. Federal law, such as the McCarran-Ferguson Act, 15 U.S.C. §1011 et seq. and the Liability Risk Retention Act of 1986, 15 U.S.C. §3901 et seq. grants to states, not to the association, the authority and responsibility to regulate the business of insurance.

(3) The accreditation program of the National Association of Insurance Commissioners requires that each state adopt uniform model laws, in derogation of state sovereignty and prerogatives, without regard to the suitability of those laws to each state, and without regard to the merits of each state's actual regulatory performance.

(4) As the impact of the National Association of Insurance Commissioners on states, insurance consumers and insurance companies has increased, the association has become less accountable to the public, and has failed to act in a fundamentally fair manner: meetings are regularly closed to the public or open only at the sole discretion of officers of the association and individuals and organizations that may be affected by the association's actions are not given a reasonable opportunity to be heard.

(5) The budget of the National Association of Insurance Commissioners has grown substantially in recent years, fueled by significant increases in fees charged to companies, and passed along to consumers: the association's 1990 annual budget of $13.9 million has increased to a 1995 projected budget of $39.9 million and the association's central office staff has increased over that time from 137 to 319. Despite the essentially public nature of the association's budget, it is not subject to state legislative review, and the fees charged by the association are not authorized by state law in the usual and customary manner.

b. Accordingly, it is the purpose of this act to:

(1) Support joint efforts by states to coordinate and improve interstate insurance regulation, in order to protect and advance the interests of the people of the State of New Jersey. The Legislature supports the system of state regulation of the business of insurance, and it is the intention of this act to strengthen that system of state regulation.

(2) Provide state legislative oversight of the National Association of Insurance Commissioners where the association's activities affect the interests of the people of the State of New Jersey.

(3) Ensure that fees charged by the National Association of Insurance Commissioners to insurance companies doing business in New Jersey are reasonable and subject to approval by a publicly accountable person or body.

2. (New section) a. Annually on or before October 1, the National Association of Insurance Commissioners shall file a report of its activities with the Governor and the Legislature which shall include:

(1) a summary of the activities of the National Association of Insurance Commissioners during the preceding year;

(2) a fiscal report, in accordance with generally accepted accounting principles, stating each and every category of personal, operating and capital expenditures; each and every category of revenue received from all sources during the association's preceding fiscal year; and anticipated expenses and revenues for the current and succeeding six fiscal years, on a form approved by the Governor, the President of the Senate and the Speaker of the General Assembly. The fiscal report shall include for each such fiscal year statements of expenditures by major program, an audit opinion of the association's fiscal report, the salaries and other compensation of officers and professional and managerial employees, compensation under each personal services contract, and such other information as may be requested on or before August 1 of each year by the Governor or the President of the Senate or the Speaker of the General Assembly, on behalf of their respective Houses;

(3) a list of each law or regulation, identified by name and version, required or proposed to be required by the National Association of Insurance Commissioners to be enacted or adopted in order for a state to receive or continue with its status as a state accredited by the National Association of Insurance Commissioners, together with a detailed explanation of why each such requirement is in the public interest, and why alternative means, less restrictive of state sovereignty and innovation, could not accomplish the public purpose of each such requirement;

(4) a description of the policies and procedures in effect with the National Association of Insurance Commissioners that are designed to ensure that a state's accreditation status is determined solely based on the merits of a state's regulatory effectiveness, a statement of whether the association has complied with those policies and procedures, and a detailed explanation of any noncompliance with those policies and procedures;

(5) a description of the policies and procedures designed to ensure that the National Association of Insurance Commissioners conducts its deliberations and makes its decisions in meetings that are open to the public and in a manner that provides fair notice and a fair opportunity for all affected persons to be heard, a statement on whether the association has complied with those policies and procedures, and a detailed explanation of any noncompliance with those policies and procedures; and

(6) any other information requested on or before August 1 of each year by the Governor or the President of the Senate or the Speaker of the General Assembly, on behalf of their respective Houses.

b. Upon receiving the report of the National Association of Insurance Commissioners, the President of the Senate or the Speaker of the General Assembly, on behalf of their respective Houses, may request that the National Conference of Insurance Legislators review the report and make recommendations to them. If that request is made and agreed to, the National Conference of Insurance Legislators shall report to the Legislature on or before January 1 following that request.

3. (New section) Insurers domiciled in this State and licensed by the Department of Insurance, including captive insurance companies and risk retention groups, shall not be required to pay any fee, assessment, or charge of any kind to the National Association of Insurance Commissioners, including annual statement filing fees, securities valuation fees, statement filing instruction manual charges, database sales charges, publications charges, software license charges or national meeting registration fees, unless those fees, assessments or charges have been established and authorized by rules adopted by the commissioner.

4. Section 1 of P.L.1950, c.231 (C.17:32-15) is amended to read as follows:

1. a. When by the laws of any other state or foreign country any premium or income or other taxes, or any fees, fines, penalties, licenses, deposit requirements or other obligations, prohibitions or restrictions are imposed upon New Jersey insurance companies, or reciprocal or interinsurance exchanges, doing business in such other state or foreign country, or upon their agents therein, which are in excess of such taxes, fees, fines, penalties, licenses, deposit requirements or other obligations, prohibitions or restrictions imposed upon insurance companies, or reciprocal or interinsurance exchanges of such other state or foreign country doing business in New Jersey, or upon their agents therein, so long as such laws continue in force the same premium or income or other taxes, or fees, fines, penalties, licenses, deposit requirements or other obligations, prohibitions and restrictions of whatever kind shall be imposed upon insurance companies, or reciprocal or interinsurance exchanges of such other state or foreign country doing business in New Jeresy, or upon their agents therein. Any tax obligation imposed by any city, county, school district or other political subdivision of any other state or foreign country on New Jersey insurance companies, or reciprocal or interinsurance exchanges, shall be deemed to be imposed by such state or foreign country within the meaning of this section, and the Commissioner of Insurance for the purpose of this section may compute the burden of any such tax obligation on an aggregate statewide or foreign countrywide basis as an addition to the rate of tax payable by similar New Jersey companies, or reciprocal or interinsurance exchanges, in such state or foreign country. The addition to the rate of tax payable by similar New Jersey companies, or reciprocal or interinsurance exchanges, shall be calculated by dividing (i) the aggregate of their tax obligations paid to any such city, county, school district or other political subdivision of such state or foreign country by (ii) the aggregate of the taxable premiums under the premium taxing statute of such state or foreign country. The commissioner may issue regulations to carry out the purpose of this act. The provisions of this section shall not apply to ad valorem taxes on real or personal property or to personal income taxes or to special purpose assessments imposed in connection with particular kinds of insurance.

b. If the Commissioner of Insurance determines that an insurance department or other regulatory agency of another state or territory of the United States has imposed any sanctions, fines, penalties, financial or deposit requirements, prohibitions, restrictions, regulatory requirements, or other obligations of any kind on New Jersey insurance companies licensed to transact insurance in that other state or territory because:

(1) the Department of Insurance is not accredited or otherwise approved by the National Association of Insurance Commissioners, or by any agent or representative of the association;

(2) the Department of Insurance has not complied with any directive, annual financial statement requirement, model act or regulation, market conduct or financial examination report or requirement, or any report or requirement of any kind imposed directly or indirectly through the laws or regulations of that other state or territory, by the National Association of Insurance Commissioners, or by any agent or representative of the association; or

(3) a New Jersey insurance company has refused to comply with, file or pay any requirement, report, fee, assessment or charge determined by the commissioner to be unreasonable and imposed directly or indirectly through the laws or regulations of that other state or territory by the National Association of Insurance Commissioners, or by any agent or representative of the association,

then the commissioner shall impose similar sanctions, fines, penalties, financial or deposit requirements, prohibitions, restrictions, regulatory requirements or other obligations of any kind on the domestic insurance companies of that other state or territory doing business in this State. The commissioner shall adopt by rule standards and procedures for imposing, calculating, apportioning and collecting those similar sanctions, fines, penalties, financial or deposit requirements, prohibitions, restrictions, regulatory requirements or other obligations.

c. If any other state or territory of the United States requires a New Jersey company licensed to transact insurance in that state or territory to pay, directly or indirectly a fee, assessment, or charge of any kind to the National Association of Insurance Commissioners in excess of the fees, assessments or charges, if any, approved by the Commissioner of Insurance under section 3 of P.L. , c. (C. ) (now before the Legislature as this bill) those fees, assessments, or charges shall be considered excessive and shall be imposed upon the domestic insurance companies of that other state or territory doing business in this State. The commissioner shall adopt by rule standards and procedures for imposing, calculating, apportioning and collecting those excessive fees, assessments, or charges.

(cf: P.L.1985, c.88, s.1)

5. N.J.S.17B:23-5 is amended to read as follows:

17B:23-5. a. When by or pursuant to the laws of any other state or a province of Canada, any taxes, licenses and other fees, in the aggregate, and any fines, penalties, deposit requirements or other obligations, prohibitions or restrictions are or would be imposed upon New Jersey insurers, or upon the agents or representatives of such insurers, which are in excess of such taxes, licenses and other fees, in the aggregate, or which are in excess of the fines, penalties, deposit requirements or other obligations, prohibitions, or restrictions directly imposed upon similar insurers, or upon the agents or representatives of such insurers of such other state or province under the statutes of this State, so long as such laws of such other state or province continue in force or are so applied, the same taxes, licenses and other fees, in the aggregate, or fines, penalties or deposit requirements or other obligations, prohibitions, or restrictions of whatever kind shall be imposed by the commissioner upon the insurers or upon the agents or representatives of such insurers, of such other state or province doing business or seeking to do business in New Jersey. Any tax, license or other fee or other obligation imposed by any city, county, or other political subdivision or agency of such other state or province on New Jersey insurers or their agents or representatives shall be deemed to be imposed by such state or province within the meaning of this section and the commissioner may compute the burden of any such taxes on an aggregate basis as an addition to the rate of tax payable by similar New Jersey insurers in such state or province. The addition to the rate of tax payable by similar New Jersey insurers shall be determined by dividing (1) the aggregate of the tax obligations paid to such city, county or other political subdivisions of such state or province by such New Jersey insurers, by (2) the aggregate of the taxable premiums of such insurers under the premium taxing statute of such state or province. The commissioner may issue regulations to carry out the purpose of this section.

b. This section shall not apply as to personal income taxes, nor as to ad valorem taxes on real or personal property nor as to special purpose obligations or assessments imposed by another state or province in connection with particular kinds of insurance; except that deductions, from premium taxes or other taxes otherwise payable, allowed on account of real estate or personal property taxes shall be taken into consideration by the commissioner in determining the propriety and extent of retaliatory action under this section.

c. For the purposes of this section the domicile of an alien insurer, other than insurers formed under the laws of Canada or a province thereof, shall be that state designated by the insurer in writing filed with the commissioner at time of admission to this State or within 6 months after the effective date of this code, whichever date is the later, and may be any one of the following states:

(1) That in which the insurer was first authorized to transact insurance;

(2) That in which is located the insurer's principal place of business in the United States;

(3) That in which is held the larger deposit of trusteed assets of the insurer for the protection of its policyholders and creditors in the United States[;].

If the insurer makes no such designation its domicile shall be deemed to be that state in which is located its principal place of business in the United States. In the case of an insurer formed under the laws of Canada or a province thereof, its domicile shall be deemed to be that province in which its head office is situated.

d. If the Commissioner of Insurance determines that an insurance department or other regulatory agency of another state or territory of the United States has imposed any sanctions, fines, penalties, financial or deposit requirements, prohibitions, restrictions, regulatory requirements, or other obligations of any kind on New Jersey insurers licensed to transact insurance in that other state or territory because:

(1) the Department of Insurance is not accredited or otherwise approved by the National Association of Insurance Commissioners, or by any agent or representative of the association;

(3) a New Jersey insurer has refused to comply with, file or pay any requirement, report, fee, assessment or charge determined by the commissioner to be unreasonable and imposed directly or indirectly through the laws or regulations of that other state or territory by the National Association of Insurance Commissioners, or by any agent or representative of the association, then the commissioner shall impose similar sanctions, fines, penalties, financial or deposit requirements, prohibitions, restrictions, regulatory requirements or other obligations of any kind on the domestic insurers of that other state or territory doing business in this State. The commissioner shall adopt by rule standards and procedures for imposing, calculating, apportioning and collecting those similar sanctions, fines, penalties, financial or deposit requirements, prohibitions, restrictions, regulatory requirements or other obligations.

e. If any other state or territory of the United States requires a New Jersey insurer licensed to transact insurance in that state or territory to pay, directly or indirectly a fee, assessment, or charge of any kind to the National Association of Insurance Commissioners in excess of the fees, assessments or charges, if any, approved by the Commissioner of Insurance under section 3 of P.L. , c. (C. ) (now before the Legislature as this bill), those fees, assessments, or charges shall be considered excessive and shall be imposed upon the domestic insurers of that other state or territory doing business in this State. The commissioner shall adopt by rule standards and procedures for imposing, calculating, apportioning and collecting those excessive fees, assessments, or charges.

(cf: N.J.S.17B:23-5)

6. Section 4 of P.L.1993, c.242 (C.17:24-5.1) is amended to read as follows:

4. Except as otherwise required by the commissioner, securities held by an insurance company transacting business in this State in accordance with the provisions of Title 17 of the Revised Statutes shall be valued in accordance with the published valuation standards of the Securities Valuation Office of the National Association of Insurance Commissioners. The commissioner may order that those securities need not be valued in accordance with the published valuation standards of the Securities Valuation Office of the National Association of Insurance Commissioners and may order that they be valued in accordance with alternative procedures or methods that are reasonable under the circumstances if the commissioner determines that the association has substantially and without cause failed to comply with the provisions of section 2 of P.L. c. (C. ) (now before the Legislature as this bill.), or has imposed fees, assessments, or charges in excess of those approved pursuant to section 3 of that act (C. ). Every insurance company licensed to transact business in this State shall comply with the filing and valuation requirements of the Securities Valuation Office of the National Association of Insurance Commissioners or requirements established by the commissioner, as applicable, with respect to the valuation of securities. Any insurance company that fails to comply with the provisions of this section shall be subject to a penalty of not less than $1,000 nor more than $5,000 for a first violation, and not less than $2,000 nor more than $10,000 for each subsequent violation.

(cf: P.L.1993, c.242, s.4.

7. Section 6 of P.L.1993, c.242 (C.17:46B-22.1) is amended to read as follows:

6. Except as otherwise required by the commissioner, securities held by a title insurance company transacting business in this State in accordance with P.L.1975, c.106 (C.17:46B-1 et seq.), shall be valued in accordance with the published valuation standards of the Securities Valuation Office of the National Association of Insurance Commissioners. The commissioner may order that those securities need not be valued in accordance with the published valuation standards of the Securities Valuation Office of the National Association of Insurance Commissioners and may order that they be valued in accordance with alternative procedures or methods that are reasonable under the circumstances if the commissioner determines that the association has substantially and without cause failed to comply with the provisions of section 2 of P.L. c. (C. ) (now before the Legislature as this bill.), or has imposed fees, assessments, or charges in excess of those approved pursuant to section 3 of that act (C. ). Every title insurance company licensed to transact business in this State shall comply with the filing and valuation requirements of the Securities Valuation Office of the National Association of Insurance Commissioners or requirements established by the commissioner, as applicable, with respect to the valuation of securities. Any title insurance company that fails to comply with the provisions of this section shall be subject to a penalty of not less than $1,000 nor more than $5,000 for a first violation, and not less than $2,000 nor more than $10,000 for each subsequent violation.

(cf: P.L.1993, c.242, s.6)

8. N.J.S.17B:20-8 is amended to read as follows:

17B:20-8. Except as otherwise required by the commissioner, securities held by insurers authorized to do business in this State shall be valued in accordance with the published valuation standards of the Securities Valuation Office of the National Association of Insurance Commissioners. The commissioner may order that those securities need not be valued in accordance with the published valuation standards of the Securities Valuation Office of the National Association of Insurance Commissioners and may order that they be valued in accordance with alternative procedures or methods that are reasonable under the circumstances if the commissioner determines that the association has substantially and without cause failed to comply with the provisions of section 2 of P.L. c. (C. ) (now before the Legislature as this bill.), or has imposed fees, assessments, or charges in excess of those approved pursuant to section 3 of that act (C. ). Every insurer licensed to transact business in this State shall comply with the filing and valuation requirements of the Securities Valuation Office of the National Association of Insurance Commissioners or requirements established by the commissioner, as applicable, with respect to the valuation of securities. Any insurer that fails to comply with the provisions of this section shall be subject to a penalty of not less than $1,000 nor more than $5,000 for a first violation, and not less than $2,000 nor more than $10,000 for each subsequent violation.

(cf: P.L.1993, c.242, s.1)

9. Section 3 of P.L.1993, c.236 (C.17:23-22) is amended to read as follows:

3. a. The commissioner or any of his examiners may conduct an examination of the assets and liabilities, method of conducting business and all other affairs of any company as often as the commissioner in his sole discretion deems appropriate but shall at a minimum, conduct an examination of every insurer licensed in this State not less frequently than once every five years. In scheduling and determining the nature, scope and frequency of the examinations, the commissioner shall consider such matters as the results of financial statement analyses and ratios, changes in management or ownership, actuarial opinions, reports of independent certified public accountants and other criteria as set forth in the Examiners' Handbook adopted by the National Association of Insurance Commissioners and in effect when the commissioner exercises discretion under this section.

b. For purposes of completing an examination of any company under this act, the commissioner may examine or investigate any person, or the business of any person, insofar as such examination or investigation is, in the sole discretion of the commissioner, necessary or material to the examination of the company.

c. In lieu of an examination under this act of any foreign or alien insurer licensed in this State, the commissioner may accept an examination report on the company as prepared by the insurance department or other regulatory agency for the company's state of domicile or port-of-entry state [until January 1, 1994. Thereafter, such reports may only be accepted if:

(1) the insurance department or other regulatory agency was at the time of the examination accredited under the National Association of Insurance Commissioners' Financial Regulation Standards and Accreditation Program; or

(2) the examination is performed under the supervision of an accredited insurance department or other regulatory agency or with the participation of one or more examiners who are employed by such an accredited state insurance department or other regulatory agency and who, after a review of the examination workpapers and report, state under oath that the examination was performed in a manner consistent with the standards and procedures required by their insurance department or other regulatory agency].

d. The reasonable expenses of any examination and any proceedings conducted under this act shall be fixed and determined by the commissioner, and he shall collect them from the company examined, which shall pay them on a presentation of an account of the expenses on such form as determined by the commissioner. If any company, after the examination, is adjudged insolvent by a court of competent jurisdiction, the expense of the examination, if unpaid, shall be ordered out of the assets of the company.

(cf: P.L.1993, c.236, s.3)

10. Section 2 of P.L.1993, c.238 (C.17:23B-2) is amended to read as follows:

2. a. Every insurer authorized to do business in this State shall annually, on or before March 1 of each year, file with the NAIC a copy of its annual statement of financial condition, along with such additional filings, as prescribed by the commissioner pursuant to law for the preceding year. The information filed with the NAIC shall be in the same form and detail as that required by the commissioner and shall include the signed jurat page and the actuarial certification. Any amendments and addendums to the annual statement of financial condition and any other financial information subsequently filed with the commissioner, including, but not limited to, quarterly financial statements, shall also be filed with the NAIC at the time this information is filed with the commissioner.

b. Foreign insurers that are domiciled in a state which has a law substantially similar to subsection a. of this section shall be deemed in compliance with this section.

c. The commissioner may require other entities which are required to file financial information with the commissioner to file such information with the NAIC.

d. (1) The commissioner shall waive one or more of the requirements established by subsection a. of this section with respect to any domestic insurer authorized to transact insurance in this State if the commissioner determines in his sole discretion that the NAIC has substantially failed to comply with the provisions of section 2 of P.L. ,c. (C. ) (now before the Legislature as this bill) or has imposed fees. assessments or charges in excess of those approved pursuant to section 3 of that act (C. ).

(2) The commissioner shall waive one or more of the requirements established by subsection a. of this section with respect to any foreign or alien insurer authorized to transact insurance in this State if the commissioner determines in his sole discretion that the domiciliary or port-of-entry state of that insurer has waived for that foreign or alien insurer and for domestic insurers authorized to transact insurance in this State one or more of the requirements established by subsection a. of this section, pursuant to a provision of law substantially similar to this section. A law is not substantially similar to the provisions of this section unless it requires the domiciliary or port-of-entry state of a foreign or alien insurer to waive for insurers domiciled in this State any filing requirements of that other state that are similar to those requirements waived by the commissioner under paragraph (1) of this subsection d.

(cf: P.L.1993, c.238, s.2)

11. Section 3 of P.L.1993, c.238 (C.17:23B-3) is amended to read as follows:

3. Members of the NAIC, their duly authorized committees, subcommittees, and task forces, their delegates, NAIC employees, and all others charged with the responsibility of collecting, reviewing, analyzing and disseminating the information developed from the filing of the annual statement of financial condition shall be acting as agents of the commissioner under the authority of this act, and in the absence of actual malice, shall not be subject to civil liability for libel, slander or any other cause of action by virtue of their collection, review, and analysis or dissemination of the data and information collected from the filings required hereunder. Nothing herein shall abrogate or lessen the common and statutory law privileges and immunities of an authorized governmental agency or any of its respective employees.

The immunity conferred by this section shall not apply if the commissioner in his sole discretion determines that the NAIC has substantially failed to comply with the provisions of section 2 of P.L. c. (C. ) (now before the Legislature as this bill), or has imposed fees, assessments or charges in excess of those approved pursuant to section 3 of that act (C. ).

(cf: P.L.1993, c.238, s.3)

12. This act shall take effect October 1, 1995.

STATEMENT

This bill grants to the Governor and Legislature of New Jersey certain oversight powers with respect to the activities of the National Association of Insurance Commissioners (NAIC). As section 1 of the bill indicates, it is being introduced in response to increasing concerns regarding the lack of accountability of the NAIC to the states it was created to assist. The rapid rise in the NAIC's budget to which state insurance regulators and the industry contribute, is of particular concern. The 1995 budget is more than $39 million, or three times the 1990 budget of $13.9 million. Yet, at the same time, as a private association, there is no clear line of public accountability, although the organization, through passage of its model legislation in many states, has effectively become a public regulator.

The bill requires the NAIC to report annually to the Legislature and the Governor on NAIC activities, expenses, revenues and salaries. In addition, the report must include an update of model legislation which a state is expected to enact to retain its NAIC accreditation; a description of how it insures that its proceedings are open to the public; and any other information the Governor or the Legislature may require. The bill further requires that fees charged by the NAIC to insurers doing business in New Jersey first be approved by the Commissioner of Insurance. Finally, it amends various statutes to provide alternatives to certain NAIC-recommended regulatory procedures if the NAIC fails to comply with the reporting and fee approval provisions of the bill.

Establishes oversight of certain activities of the National Association of Insurance Commissioners.