Enhancing state regulation of insurance through the interstate compact

In this article, the author examines the use of the interstate compact as a mechanism for the continued regulation of the business of insurance by the states. The last decade has produced a new series of congressional investigations into the state regulatory system, producing a list of federal criticisms of the system's effectiveness. Of major concern is the states' handling of the numerous insolvencies that occurred first in the property and casualty business during the 1980s and the more recent failure of several large multistate life insurance companies. These criticisms have generated a flurry of corrective activity on the part of state regulation, the most notable being the development and partial implementation of the National Association of Insurance Commissioner's Financial Standards Accreditation Program. While this program addresses most of the federal concerns, one major criticism remains unanswered - the NAIC's kick of compulsory enforcement power for its decisions on member states. This article suggests that implementation of the constitutionally sanctioned interstate compact device used in conjunction with the NAIC accreditation program could counteract the remaining criticism of state regulation and, in the process, provide a stronger and more uniform approach to the handling of selected problems presently confronting it.