NCOIL 2012 Spring Meeting Report: Property and Casualty Issues

 

The National Conference of Insurance Legislators (“NCOIL”) held its Spring Meeting in Biloxi, Mississippi during the weekend of February 24-26, 2012.

To access the meeting materials, click here.  To view a comprehensive meeting schedule, click here.  Related news releases are listed below:

• NCOIL Spring Meeting: Special Forum to Focus on Federal Insurance Office Report
• Senator Leavell Takes on NCOIL Presidency, Announces 2012 Leadership/Priorities
• NCOIL Model to Ensure Timely Payment of Death Benefits
• NCOIL Model Sparks Certificate of Insurance Controversy, Debate Is Just Beginning

Developments particularly significant to members of the property and casualty insurance industry are highlighted in the following partial meeting recap:  

 

International Insurance Issues Committee

With a special focus on U.S. trade agreements, transparency and state preemption, NCOIL’s International Insurance Issues Committee (“IIIC”) discussed heightened global efforts to influence U.S. regulation.  Subsequent to hearing a report on international accounting standards and state impacts, the IIIC explored trade agreement transparency, preemption concerns and state options, after which it considered a resolution on trade activity and states’ rights.

During the discussion, Texas Insurance Commissioner Eleanor Kitzman addressed various international insurance issues, focusing on financial and accounting equivalency standards and the National Association of Insurance Commissioners’ (“NAIC”) efforts to work with international regulators.

The role of the federal government and impact of increasing that role will have on states’ rights were among the concerns raised.

 

State Leaders Roundtable on the Anticipated Federal Insurance Office Report

• Attachments: NCOIL and NCSL letters to Director Michael McRaith

During the State Leaders’ Roundtable, attendees discussed the anticipated Federal Insurance Office (“FIO”) report on modernizing U.S. insurance regulatory oversight.  Although the report (which was due in January 2012) has yet to be published, state officials and interested parties at the Roundtable discussed related questions.

It was reported that NCOIL had December 8 and 9, 2011 meetings with FIO Director McRaith, during which NCOIL representatives related the organization’s thoughts on insurance reform to Director McRaith and attending staff.

The State Leaders’ Roundtable included NCOIL representatives, Oklahoma Insurance Commissioner John Doak and General Counsel Owen Laughlin, along with representatives from the National Conference of State Legislatures (“NCSL”) and the NAIC.

During the December 8 and 9 meetings with Director McRaith, NCOIL representatives focused on issues related to the lack of uniformity, the value of state regulation, the value of non-uniformity in some instances, states’ performance in regulating solvency and reserves, and the development of model laws. 

NCSL representatives, who also met with Director McRaith, discussed the synergistic relationship between the federal government and states.  A significant take-away from their meeting was the impression that Director McRaith believes that the FIO has the authority to “direct major components” of the U.S. insurance marketplace and appears to believe in a greater role for the FIO. 

An NCSL concern was the importance of having state legislative presence in an advisory capacity to the FIO on federal insurance issues.  Director McRaith mentioned the possibility of setting up related subcommittees that may include state legislators.

NAIC representatives met twice with Director McRaith.  One of the meetings related to solvency issues and included U.S. Department of Treasury staff.  It was reported that the NAIC has been providing information and staff support to Missouri Insurance Commissioner John Huff, who is a member of the federal Financial Stability Oversight Council (“FSOC”).  During one of the meetings, Director McRaith had suggested to the NAIC representatives that the FIO has more authority than to just collect data.

A significant discussion ensued among Roundtable participants.  Major concerns were raised that the federal government will become more involved in insurance regulation and could  “overreach,” ultimately infringing upon states’ rights to regulate insurance.  This was termed by one panelist as “a solution looking for a problem.” 

Saying that the states need to get organized and unify on this issue, another panelist suggested that the surplus lines compact provisions of the Nonadmitted and Reinsurance Reform Act (“NRRA”) may have been set up to fail and could ultimately become an avenue for more federal regulation and revenue.  Yet another panelist at this weekend’s Roundtable suggested the federal government’s role may ultimately lead to a need for litigation.

It was suggested that agent and broker licensing is working pretty well, but that Director McRaith had expressed concern about issues related to market conduct exams that have sometimes become costly and duplicative for multi-state insurors.  Another Roundtable participant suggested that legislators need to work with the NAIC to fight federal intrusion into insurance regulation. 

 

Keynote Address

Mississippi Senator Roger Wicker (R), a member of the U.S. Senate Banking Committee, served the Keynote Speaker at the event’s luncheon.  In his address, Senator Wicker stressed that states should remain primary insurance regulators.  He denounced the Dodd-Frank Act as providing an unprecedented level of federal power, together with an alarming lack of transparency.  He indicated that many want the FIO to regulate and that he felt this may be an interim step to an optional federal charter.  He also endorsed proposals that would require a coordination of benefits for flood and wind policies.

 

State-Federal Relations Committee

Further discussion of FIO issues took place during the State-Federal Relations Committee (“SFRC”).  Those in attendance heard an update on Dodd-Frank implementation, including developments relating to the Surplus Lines Multistate Compliance Compact (SLIMPACT).  Meeting attendees also discussed producer licensing modernization and reviewed market conduct issues.

A meeting panelist indicated that the FSOC is now fully staffed and will be designating companies that are systemically significant.  Some felt that this FSOC authority will be the launching point for more intrusive federal regulation of insurance.  One panelist noted that Dodd-Frank provides for 87 different studies and authorizes the adoption of 490 sets of regulations.

Another presenter indicated that all but seven states adopted some form of law or regulation in response to the NRRA.  So far this year, four states – Illinois, Iowa, Colorado and Wisconsin – have NRRA-related bills filed.  Three other jurisdictions – the District of Columbia, Michigan and South Carolina – have not filed bills yet.  Georgia and Oklahoma have bills pending to provide that they will use only their home state tax rate until the activation of a compact or agreement they have joined.  Kentucky has a bill to amend its laws to be consistent with the NRRA, while several states have studies pending on the fiscal impact of the NRRA.

An update was given on the Interstate Insurance Product Review Compact (“IIPRC”).  Currently, the IIPRC includes 40 states (and Puerto Rico) and comprises over 70 percent of premium produced.  Presently, 120 companies use the IIPRC and more filings are being made as time goes on.

Issues expressed at the meeting regarding the modernization of producer licensing included those relating to duplication.  This included one complaint on the need to separately secure an individual license, an agency license and to also register with a secretary of state.  Also, some non-resident states force agents to provide more information and do not observe reciprocity with the agent’s home state.  One estimate was that the cost of licensing compliance equals 4.3 percent of agents’ operating expenses.

 

NCOIL-NAIC Dialogue

Pennsylvania Insurance Commissioner Michael Consedine reported that 30 states have signed onto a multi-state market conduct review consent order relating to the use of the U.S. Social Security Administration’s Death Master File (“DMF”) in connection with the payment of life insurance benefits.  This involves the practice of some insurers using the DMF for the termination of payment of annuity benefits, but not for the payment of life insurance claims. 

It is expected that Prudential will implement procedures set forth in its settlement consent order and will be subject to monitoring by the state departments of insurance.  Further developments with other insurers are expected.

There was significant additional discussion about the FIO report and the expected challenges that may arise when the FIO begins to implement its findings.  This included the need for NCOIL and the NAIC to work together.  Some felt the real danger lies with the federal authority to address systemic risk and the broadening of federal authority based on that.  NCOIL’s Executive Committee will appoint a group to work on the FIO findings with the NAIC. 

The group also discussed market conduct and producer licensing issues.  Generally, some states feel strongly about these issues, which results in a wide range of approaches.  NCOIL requested that the NAIC again review the NCOIL market conduct model and that they work together to find a common framework for states to enact.  The goal would be to minimize cost, but also give states the ability to review particular issues each may have.

Finally, the Committee heard from NAIC representatives on their changes to the NAIC model law and regulation pertaining to insurer holding companies.  Systemic holding company issues are of concern, and the goals of the revisions are to review issues of contagion within the holding company that could negatively impact insurers, and to wall off insurers from holding company risk of contagion.

 

Property and Casualty Committee

NCOIL’s Property and Casualty Committee (“PCC”) briefly discussed an initiative that it will undertake for the purpose of reviewing coastal insurance issues.  One panelist suggested that the PCC should avoid adopting policies that have resulted in the challenges that currently plague the Florida insurance market.

The PCC also heard a report from a Federal Emergency Management Agency (“FEMA”) representative that mostly centered on flood-related claims activity over the last few years.  The National Flood Insurance Program (“NFIP”) has a current deficit of $18.75 billion and it does not expect that to grow before the end of its fiscal year.  FEMA is trying to get a five-year extension of the NFIP, which is due to expire on May 31, 2012.  The Committee discussed the need for updating standards on related flood mapping, building codes and mitigation.

The PCC also considered a proposed Resolution Regarding Third-Party Litigation Financing, which expresses concern over the impact on consumers and the judiciary and supports banning the practice of giving litigation loans.  Typically, these loans are only repaid if a plaintiff wins or receives settlement proceeds.  Concerns were raised with usurious interest rates charged and the effect these loans may have in fostering litigation.  The Committee deferred decision on this Resolution, pending further study of the issue.

 

Re-approval of Automobile Insurance Model Act

Previously adopted by NCOIL in 2006 and intended to impose criminal penalties against “runners,” as well as for staged accidents, NCOIL’s Auto Insurance Fraud Model Act was re-approved at the PCC meeting.  It establishes penalties for acting as a runner, capper, or steerer and/or for participating in a staged accident.  The model also sets restrictions on access to accident reports and calls for a one-year license or registration suspension for any person who commits auto fraud while driving a vehicle. 

The Committee also workshopped a Certificate of Insurance Model Law.  The proposed Certificates of Insurance Model Act attempts to clarify limitations on the certificates that third parties use to verify insurance coverage.  This model also attempts to stem fraud and misuse, and includes a provision, among others, that requires all forms to say that they are for “information only.”  

With existing New York State law used as a possible basis, the PCC also considered developing a companion bill to address lender evidence-of-insurance concerns (i.e., binder expiration dates and policy renewal notice). 

PCC members heard from industry stakeholders about the need for certificates of insurance to be applicable to lenders.  Members of the banking industry on hand argued that banks should be exempted from statutes being introduced around the country that would permit a standard certificate to be used.  The bankers don’t want a certificate to be “for information only,” nor do they want insurance binders to expire, because they are at risk of not having insurance coverage.  The issue was not resolved and the PCC will continue to study it.

Also discussed was the issue of terminating the NCOIL Natural Disaster Catastrophe Fund Model Act, which would create a fund aimed at helping a state maintain a viable and orderly insurance market in the event of a major natural disaster.  The PCC was in favor of eliminating this model, but expressed a desire to create an alternative.  Since they were uncertain about alternatives, the PCC will continue to study this issue as well.

Meeting materials as specified above are attached for review.