National Conference of Insurance Legislators: Recap of 2012 Summer Meeting Committee Discussions and Actions

 

The National Conference of Insurance Legislators (“NCOIL”) held its 2012 Summer Meeting in Burlington, Vermont from July 12-15, 2012.  During that time, the following actions were taken:

• Adoption of a model act on the use of insurance binders
• Adoption of a resolution reaffirming support for producer licensing modernization
• Debate and deferral until the Annual Meeting a proposed model on third-party litigation financing
• Adoption of amendments to an unclaimed life insurance benefits model to stay abreast of recent developments

Copies of the adopted models are attached for review.

To view the complete meeting agenda and information, click on the hyperlinks below.

• Tentative General Schedule
• 30-Day Meeting Materials

Following are summaries of several of the committee meetings that took place on Days One and Two of the event (a report on Day Three will follow):

 

DAY 1

 

Roundtable:  “States and the FIO-What Will the FIO Report Mean for U.S. Insurance Regulation?”

In a roundtable forum held on Day One of the Meeting, it was related that the Federal Insurance Office (“FIO”) report originally due in January 2012 was expected to have been published last month (June 2012).  No “inside information” is available on when it will actually finally be released.

Nancy Bennett of the American Academy of Actuaries discussed a report she had presented to the FIO in which she stated that, not only is the insurance industry’s stability intact, but that it survived the recent financial disasters partially because of current regulatory practices.  In her opinion, some issues that could impact industry stability include influence from the international market and an increasing amount of companies with international ownership.

Any new regulations should contemplate the insurance market, while realizing that insurance is not the same as banking, she added.

A phenomenon known as the “Reliance Gap” can increase risk when regulators arbitrarily rely on each other’s information, Ms. Bennett explained.  Thus, more coordination among regulators is needed.

Birny Birnbaum from the Center for Economic Justice remarked that the FIO is expected to help modernize state-based regulation and financial stability issues.  Its job is to be an insurance expert and assist with coordination of issues among insurers and regulators.  For example, the FIO could help “seal” regulatory gaps in the regulation of banking products and credit-related insurance products.

The FIO also could help develop a national disaster policy and foster communication among all related national agencies, Mr. Birnbaum added.

Further, the FIO has the authority to collect data and the responsibility to examine issues dealing with undeveloped communities, he said.  Having this occur at the federal level is more efficient than having it handled by individual states.

Kevin McKechnie of the American Bankers Insurance Association remarked that the FIO needs to be a voice for the insurance industry.   Bankers still want to sell insurance products and the FIO report will hopefully give some guidance on how to do that, he said.  Its only failing is that it does not include the state legislators’ input.

Wes Bissett of the Independent Insurance Agents and Brokers of America said his organization has always supported the state-based regulatory system, which has done a good job, in his opinion.   Not a regulatory body, the FIO has a limited role in regulating insurance.  However, since it is charged with writing numerous reports pursuant to the Dodd-Frank Act of 2010, it could inadvertently create a market disruption.

Bruce Ferguson of the American Council of Life Insurers said he is keeping an open mind in regard to the role of the FIO, which could be vital in regulatory coordination.

Life insurance companies already have a hybrid system of state and federal regulation.  The FIO, he said, could prevent standards from overlapping.  Further, the FIO is part of the international insurance dialogue taking place in the increasingly global insurance community and will ensure that U.S. interests are protected therein. 

Although Washington knows banking, Mr. Ferguson said, it may not know insurance.  Therefore, he felt it is important to ensure that the federal government doesn’t enact policy without understanding its impact on the insurance industry.

New Hampshire Insurance Commissioner Roger Sevigny commented that the National Association of Insurance Commissioners (“NAIC”) has been involved in making sure the FIO doesn’t become a regulator.  The NAIC is in constant communication with FIO, which brings new dimensions to the U.S. Treasury, along with insurance expertise, he added.

The NAIC coordinates with the FIO on the following:

• International Association of Insurance Supervisors, at which both organizations have a “seat at the table”
• Solvency II dialogue
• United States Trade Representative
• Organization for Economic Cooperation and Development
• China strategic dialogue
• Financial assessment examination
• Monitoring of the domestic insurance industry

 

State-Federal Relations Committee

During NCOIL’s State-Federal Relations Committee meeting, Kentucky Insurance Commissioner Sharon Clark reviewed developments relating to the Surplus Lines Insurance Multi-State Compliance Compact (“SLIMPACT”), of which there were few, since it is still in limbo with only nine members–one fewer than it needs to be activated.  Even with SLIMPACT’s introduction of the “Kentucky Compromise,” which received good feedback from the industry, a tenth member state has been unable to be recruited.  Hawaii, which was apparently going to join SLIMPACT at one point, has not.  She noted that meanwhile, six states have exited Non-Admitted Insurance Multi-State Agreement (“NIMA”), leaving only five states in that organization.

A representative from the Council of State Governments remarked that some progress has been made in states’ implementation of SLIMPACT and that NIMA is not a compact.  Nevertheless, momentum to implement the surplus lines reform provisions of the Dodd-Frank Act of 2010 has decreased.  With a lack of desire to achieve uniformity, the marketplace has suffered from fatigue and states are “just taxing at 100 percent,” the representative said.

Dan Maher of the Excess Lines Association of New York said he is still getting feedback from brokers that they are, indeed, looking for uniformity, which was the goal of SLIMPACT.  “It wasn’t just supposed to be about taxes, it was more about creating uniform standards,” he said.  “Maybe SLIMPACT needs to get back to the original goal.”

One NCOIL committee member wondered happened to the National Association of Professional Surplus Lines Organizations (“NAPSLO”), which had formerly been part of the initial SLIMPACT discussions.  A NAPSLO representative was on hand to respond that the organization is still very supportive and has been involved in drafting the related Hawaii legislation.

In regard to market conduct examinations, Commissioner Clark said that administrative changes are being made to regulation to better help with coordination and ensure that all 50 states are represented in the examination process. 

Data is being simplified to make it more useful to states, she noted, adding that it is not feasible to always include a domestic state in an exam.

When evaluating the qualifications of examiners, it must be determined whether they are in-house or contract examiners and what are the most cost-efficient ways for the examinations to be done.

It was advised that long-term care and force-placed insurance issues will be addressed at the next NAIC meeting.

Ray Farmer of the American Insurance Association agreed that improvements in examinations have been made.  States are moving away from comprehensive exams to those that are more targeted.  Improving the system is always a work in progress, but he agreed a better framework is needed to control examination costs of the examination.  The NAIC is focusing on how to better coordinate examinations. 

Mr. Farmer said there also should be a better tracking system, since there has been an increase in state-by-state overlap of financial and market conduct examinations.

Deirdre Manna from the Property Casualty Insurers Association of America (“PCI”) agreed that many problems with exams exist, such as who is conducting them, the length of time they take, the financial burden they cause and the lack of coordination.

The Committee then considered a resolution reaffirming support for producer licensing modernization.

New Mexico Senator Carroll Lovell presented the resolution and reminded members that this was the third time they had reviewed it.  David Epstein of National Association of Professional Insurance Agents and Bill Anderson of the National Association of Insurance and Financial Advisors both spoke about the resolution, which was ultimately adopted by NCOIL’s Executive Board after technical issues within it were addressed.

Commissioner Sevigny updated the Committee on the Interstate Insurance Product Regulation Commission and the growth in the number of filing companies.  He indicated that New York and California may join this compact, which comprises 140 companies and 65 percent of the marketplace.

 

NCOIL- NAIC Dialogue

During the NCOIL-NAIC Dialogue, Tennessee Insurance Commissioner Julie Mix McPeak said the SLIMPACT member states are willing to continue discussing changes to the surplus lines tax allocation process.  However, larger tax collecting states have indicated they are going continue to tax at 100 percent until further Congressional mandate.

One NCOIL member voiced his concern that SLIMPACT was going to take up more regulatory issues, and that he was under the impression that the reason states joined NIMA was because their respective structures didn’t afford the requisite regulatory component.  If SLIMPACT started down that line of conversations again, he said, he felt it would continue to repel states.  

Insofar as NAIC involvement in health-related issues, Commissioner McPeak said she is trying to finalize white papers after the U.S. Supreme Court upheld the law.  In trying to give states support and guidance, she will highlight questions they need to address as they implement the Patient Protection and Affordable Care Act (“PPACA”).  Many are concerned about the portion of the bill that would expand Medicaid. 

It was recognized that there will be conflicts with insurance commissioners, governors and legislators on how to move forward with implementing the new law.  The need to work with the NAIC on the changes was also acknowledged.

Commissioner Sevigny provided the following updates:

• Only 41 states have adopted a uniform standard on producer licensing, which was said to be very frustrating. The need to standardize producer licensing reciprocity continues, while the NAIC is working on the issue. The National Association of Registered Agents and Brokers (NARAB II) is a more modernized structure to help with reciprocity, since it understands the market implications and the burden on the agents to get licensed in each state.

• The National Insurance Producer Registry (NIPR) is 100 percent complete on non-resident renewals.

Finally, Commissioner Clark reviewed the NAIC Insurance Holding Company Model Act, which she described as very technical.  Already passed in six states, the Model allows additional access to corporate books and records. 

 

DAY 2

 

Financial Services and Investment Products Committee

In its meeting on Day Two, the Financial Services and Investment Products Committee reviewed Dodd-Frank Act implementation activity and its bank-centric regulations, which seem to be overlooking the insurance industry, it was said.  NCOIL is working to change that, however, since insurance is not like other financial services.

A representative from the NAIC reported on that organization’s development of a Social Media White Paper, the goals of which are to identify how social media is used in the insurance industry, and its related compliance and regulatory issues.  Consistent with guidelines from the Financial Industry Regulatory Authority (FINRA), the White Paper will also afford guidance on how to deal with these issues, but it is not intended to create new policies.   To view the most recent copy of the White Paper, click here.

Concern was expressed that the NAIC is putting the burden on the companies to create social media standards, and that there will eventually be market exams that will review the standards.  The NAIC representative assured the Committee that it would not be issuing standards, just guidance.  There has been no NAIC directive to produce regulations.

Ms. Manna indicated that her organization was pleased with the progress on the White Paper and agreed that it is a guidance document, as opposed to one that suggests regulations.

Next, Mr. Birnbaum reviewed state and federal activity related to force-placed or lender-placed insurance, of which there has been a massive increase because of the nationwide foreclosure crisis.  The product’s loss ratio, important because of states’ rate standards, has been around to 25 percent in the lender market and around 65 percent in the homeowner market.

Some of the following issues with force-placed insurance have been raised by regulators, as well as through lawsuits:

• Mortgage servicers have been using force-placed insurance as a profit center, giving cash commissions and sharing profits to subsidize other expenses.
• The impact of the high cost of force-placed insurance on individual borrowers already in financial distress serves to dramatically increase the amount they will ultimately owe the bank, thus exacerbating the national foreclosure problem.
• The use of retroactive billing for coverage when the homeowner’s insurance policy lapses does not afford proper notice to allow time for a homeowner to get his or her own policy.
• Ten to 15 percent of force-placed policies were canceled under false placements–those done in error. 

Mr. McKechnie remarked that the issue is really a debate over reform of the mortgage market, not just a banking issue.  However, his group (American Bankers Insurance Association) is at the forefront of the debate, which may not be resolved for some time. 

Foreclosures aren’t going away, he explained, and the banks are not recovering the losses of homes that force-placed policies are being placed on.  Since there is often no equity in these homes, banks can’t recoup the losses. 

But it is a solvable problem, Mr. McKechnie said, since force-placed insurance can be “shut off” by a homeowner resuming payment for his or her usual insurance policy.  Also, if there is an error with a force-placed policy, it can be easily fixed.

Harry Bassett from Assurant stated that force-placed insurers are essentially the “carrier of last resort.”  These insurers do not have a normal book of risk.  Rather, they take what they can get.

Questions from Committee members ensued.  In response to a query on what entity is regulating force-placed insurers, Mr. Birnbaum explained that state insurance regulators handle agents and policy forms, however, banking regulators handle procedures and standards for force-placed insurance and the mortgage industry. 

At this time, a discussion of credit insurance and debt protection regulation was removed from the agenda.

Bruce Stern from Financial Security Assurance, Inc. reported on the state of bond insurance.  Many companies in this industry have had their ratings decreased, but are still producing a valued product.  Among the related issues are:

• Disputes with banks on backed securities, leading to an increase in lawsuits
• Growing related developments in municipalities
• Implementation of regulatory changes such as those pursuant to Dodd-Frank

In regard to whether there standards that that municipalities are asked to update, Mr. Stern explained that municipalities that bond are constantly survey and monitored, but not their implementation of standards.

New Mexico Senator Carroll Leavell updated the Committee on the Governmental Accounting Standards Board (“GASB”) public pension reform initiative.  Many unfunded mandates exist for governments, who often don’t seem to have the political capital to make changes to the mandates.   Many states are in the same position, he added.

Craig Hanna from American Academy of Actuaries said that the GASB plans have new requirements for providers and employees, as well as new standards for government entities.

The Committee contemplated the soundness of creating standards in the public sector corresponding to those that are currently established for the private sector.  It was debated whether the GASB will try to ensure any public standards match those of the private sector.  An effort to bring forth the issue in a transparent manner has begun.

 

SYMPOSIUM:  Healthcare Reform–What Hurdles Lie Ahead?

In a symposium entitled “Healthcare Reform–What Hurdles Lie Ahead?” White House Office of National Drug Control Policy David Mineta provided a briefing on his area, explaining that he works with NCOIL to create non-partisan state policies, since every dollar spent on drug treatment dramatically reduces overall healthcare costs, including those at the local business level.

In order to expand capacity, he said, healthcare providers must become more efficient through practices such as electronic recordkeeping, data sharing and elimination of service duplication.  A demand for an increase in the healthcare workforce is also expected.

Vermont’s Director of Healthcare Reform Robin Lunge reviewed what that state is doing in regard to healthcare reform.  In Vermont, reforms have been more comprehensive, but unimpacted by the recent U.S. Supreme Court PPACA decision. 

In the second part of the symposium, U.S. Department of Health and Human Services’ (“HHS”) Center of Consumer Information and Insurance Oversight (“CIIO”) Acting Director Teresa Miller explained that work can now begin on fully implementing the Patient Protection and Affordable Care Act (“PPACA”).

Her area has focused on getting resources to states to develop PPACA’s health exchanges, which will provide consumers a one-stop health insurance shop.  The HHS has encouraged each state to develop its own exchange, but will also be offering states a partnership opportunity.  While the federal government will run the mandated exchanges if the states chose not to, the partnership is recommended, since states will still outline essential health benefits for themselves.

Thirty-four states have received over $850 million to assist in constructing their exchanges.  Another round of grants is expected to be awarded in mid-August and a guidance model is available to help states format their exchanges.  More guidance will be released in the future. 

Under PPACA, rate increase requests of more than 10 percent will require approval.  Grants are also available to states to help with this role. 

Approximately 12 million Americans are expected to receive rebates pursuant to PPACA’s medical loss ratio provisions.

Discussion over PPACA and the Supreme Court decision followed the presentation.

 

Property- Casualty Insurance Committee

In the Property-Casualty Insurance Committee, NCOIL members discussed insurance issues relating to natural catastrophes. 

In a report given on the National Flood Insurance Program, recent legislation extending the program for five years was reviewed, specifically those provisions that have changed.

Members also reconsidered a draft resolution on state control of natural catastrophe policy.  The sentiment was that states should be more proactive in generating such a policy.  Alabama State Representative Greg Wren, who is working on making significant changes to the resolution, received unanimous approval to remove it from the current agenda and revisit the issue at the next NCOIL meeting in order to allow for additional debate.  

Next reviewed was NCOIL’s Building Code Model Act, which establishes a commission to update and review states’ building codes, as well as to make recommendations on the codes.  The Model was approved with limited discussion.

Also considered was a Model Act on Third-Party Financing of Lawsuits.  Tennessee State Representative Charles Curtiss opened the conversation by stating that his reason for filing the Model Act was simply to prompt debate.  Part of the conversation revolved around which committee should be hearing this issue.  

It was explained that parties are settling claims quickly because they need the cash immediately and can’t afford to continue litigating.   Members of the insurance industry on hand at the meeting spoke against the proposed legislation.  The matter was deferred until the next meeting. 

Also on the agenda was consideration of the Limited Lines Travel Insurance Model Act,  which was sponsored for discussion purposes by Kentucky State Representative Robert Damron.  He explained that some states have passed bills similar to the Model, and that its language has already been adopted by the NAIC.  Notwithstanding, more education is needed on the question of what constitutes travel insurance, since there has been heightened scrutiny in this market based on the international tragedies such as the Costa cruise line disaster in Italy.

The Model is intended to provide consumer protections, for which there is currently limited regulation and compliance.  The proposal will be taken up once again at NCOIL’s November meeting to allow time to review and discussion.  

Howard Goldblatt from the Coalition Against Insurance Fraud made a presentation about the current climate regarding insurance fraud.  Many states have started establishing civil penalties for committing certain types of insurance fraud and are tightening their current laws.  Alabama created a fraud bureau and finally passed an insurance fraud law during this year’s legislative session, he said.

Finally, Kentucky State Representative Steve Riggs discussed an insurance binder law model that was ultimately approved this weekend by NCOIL’s Executive Committee.

 

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