National Conference of Insurance Legislators 2012 Annual Meeting Recap

 

At the National Conference of Insurance Legislators (“NCOIL”) Annual Meeting held this past weekend (November 15-18) in Alabama, legislators in attendance made various key public policy decisions, among which included:

• The NCOIL Executive Committee’s adoption of a Certificates of Insurance Model Act;
• The commitment to develop a model law on discontinued health insurance plans;
• The commitment to join with other groups in opposing a “Non-Income Taxpayer Project” relating to insurer investment income; and
• The determination to investigate title insurance concerns and opportunities for model legislation

 

Certificate of Insurance Model Approved After Controversial Amendments Withdrawn

After an 18-month dialogue on the issue that often included heated exchanges, the NCOIL unanimously adopted a Certificates of Insurance Model Act on November 18 that seeks to clarify the rules for using controversial policy summaries.  

Clearing the way for its adoption was the lending industry’s withdrawal of its contentious amendments with the understanding that legislators would seriously consider new lender revisions to an NCOIL Insurance Binder Model Act.  The amendments would have exempted commercial lending transactions and given certificates developed by the banking industry the same treatment as certificates filed by groups like ACORD and ISO.

In general, the approved Certificates of Insurance Model Act would ban changes to certificate forms.  It would assert that certificates are not insurance policies and don’t provide different or extra coverage than the policy does.

An amendment adopted by the Property-Casualty Insurance Committee during the approval process would exempt certificates-such as those for environmental liability-when federal law specifies content and wording.  

During Committee debate, legislators and interested parties discussed whether the proposed deliverance-of-a-policy and/or binder language needed rewording to clarify its intent. Representatives of both lenders and the property and casualty industry also aggressively debated the status of a controversial form that would merge certain certificate of insurance and insurance binder forms.

The Committee will next consider the lender amendments at NCOIL’s March 8-10 Spring Meeting in Washington, D.C.  The binder model was developed in response to lenders’ need for a non-expiring document that officially proves coverage.

 

Concerns Raised on Multistate Tax Commission Project Related to Insurance Company Investment Income

“Grave” concerns were raised during meetings about draft model legislation being considered by the Multistate Tax Commission (“MTC”) in conjunction with its Non-Income Taxpayer Project (“Project”).  The model, scheduled to be considered at the MTC’s December 2012 meeting, would apply regular state corporate income taxes to the income from partnerships and disregarded entities for which insurers have more than 50 percent ownership.

The NCOIL will work to develop a letter of opposition to the model to send to the MTC.

NCOIL President Senator Carroll Leavell of New Mexico discussed the importance of the issue, emphasizing, “This proposal has the potential to upset the long-standing and effective arrangement that applies state gross premium taxes to insurers in lieu of corporate income taxes. Gross premium taxes are a major, major source of revenue for many states, and we cannot afford anything that might interfere with them, especially now. The industry accepts the current system as fair, and enacting this would upset that balance.”

The NCOIL’s position is that the gross premium tax system is a large and stable source of state revenue and the principles behind it should not be impeded.

The MTC model bill would tax the income of any partnership or LLC that is majority-owned by an insurance company, thereby subjecting insurance companies to state corporate income taxes–the very tax that premium taxes were designed decades ago to replace, according to NCOIL.

In a subsequent news release, NCOIL explained that a substantial risk exists for the MTC model to trigger retaliatory taxation, a potential unique to the insurance industry. The MTC has concluded that a retaliatory tax would be avoided by imposing tax on the subsidiary entity rather than the insurer, in spite of expert opinion to the contrary.

 

NCOIL Seeks to Develop Model Law on Discontinued Health Insurance Plans

After a year of committee exploration of the issue, the NCOIL Executive Committee voted unanimously on November 18 to  develop a model law designed to aid health insurance policyholders who find themselves in a closed book of business.

The model, approved by NCOIL’s Health, Long-Term Care and Health Retirement Committee, will focus on educating policyholders of the implications of being in a discontinued health care plan.

Legislators believe that companies should be obliged to notify consumers of their circumstances and should be required to share with policyholders the implication of being in such a plan, the likelihood of increases in premium, and the options available to them upon a change in their insurance policy.

NCOIL’s Health, Long-Term Care and Health Retirement Committee had looked at concerns related to discontinued health plans at its 2012 Spring and Summer meetings, but deferred the issue to consider implications of the Patient Protection and Affordable Care Act (“PPACA”). 

In addition to the development of the model, the Committee also elected to further examine the PPACA and the licensing of exchange navigators, as well as to continue to follow the impacts of federal reforms and provide guidance to states implementing federal healthcare.  Legislators also resolved to explore issues regarding Medicare and Medicaid, investigate long-term care insurance issues and examine state activity on mandated oral chemotherapy treatments.

The Committee elected to postpone the review of the NCOIL Mental Health Parity Model Act until the Spring 2013 meeting.

 

Tougher Insurance Regulation Explored

In a review of the title insurance market, NCOIL lawmakers committed to exploring the possibility of creating related model legislation in 2013.

A special November 16 panel discussion was held by NCOIL’s Property-Casualty Insurance Committee in response to strong legislator concerns about title insurance costs and competition voiced at NCOIL’s 2012 Summer Meeting.

Participating in the discussion were Massachusetts Insurance Commissioner Joe Murphy, who discussed various National Association of Insurance Commissioners title insurance efforts; Justin Ailes of the American Land Title Insurance Association, who outlined how title insurance works and its economic impacts; and Robert Holman, who represented the National Association of Independent Land Title Agents and spoke about conflict of interest concerns, among other items.

During the course of the discussion, Mr. Ailes said that title insurers in 2011 had a combined ratio (amount of expenses and losses as related to premium earned) of 112.7 percent, compared with the rest of the property and casualty industry’s ostensibly healthier 108.3 percent. He explained that title insurance covers against past events, rather than possible future losses, such as the case with auto insurance.  The title insurance industry was working on best practices to enhance efficiencies and consumer protections, he said.

Mr. Holman said consumers should be concerned about consolidation and anti-competition, noting that just four companies write a significant majority of coverage in the U.S. He said that arrangements among title insurers and entities such as realtors and settlement lawyers limit consumer choice and help increase prices.  He also commented that improvements and protections were warranted.

At the conclusion of the Committee meeting, the group adopted a 2013 charge to investigate title insurance concerns and take a position as appropriate.  Title insurance-which is primarily a U.S. phenomenon-protects lenders from liability and losses related to land title disputes.  Lenders require their borrowers to purchase title insurance on the lenders’ behalf in order to secure a loan. The borrower can buy title insurance for himself, if he chooses, at an additional cost.

 

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