Price Optimization Draft White Paper Approved for Public Comment by NAIC Casualty Actuarial and Statistical Task Force; Actuarial Opinion Qualifications Debate Continues

May 20, 2015

Above: Colodny Fass’ Donovan Brown Notes Comment Deadline on NAIC Draft Price Optimization White Paper Is July 3

With a long list of comments already having been submitted on a draft white paper explaining the background and various aspects of price optimization, there was virtually no additional input on it by regulators or interested parties during the National Association of Insurance Commissioners’ (“NAIC”) Casualty Actuarial and Statistical Task Force (“Task Force”) meeting yesterday, May 19, 2015.

To view the meeting materials, click here.

Rhode Island Associate Director of Insurance Paula Pallozzi noted the white paper’s sections pertaining to the concept of “elasticity of demand,” saying that, in regard to price optimization modeling, the likelihood of policyholder renewal tied to complaints filed against insurers had not been among the white paper’s contemplated factors, such as insurer profitability. She added that, to her knowledge, there are price optimization models dealing with profitability, but none that incorporate the rate of consumer complaints.

It also was noted that, since the price optimization white paper had been drafted, the Florida Office of Insurance Regulation (“OIR”) had published an informational bulletin providing a definition of “price optimization” and requesting insurers to refile any rates in effect to which the practice is currently applied.

At the request of the Task Force Chair, OIR Actuary Howard Eaglefeld said he would incorporate Florida’s information into the OIR’s comments on the white paper draft.

The Kansas Insurance Department representative moved to approve exposure of the price optimization draft white paper for a 45-day comment period, followed by a second to the motion by the representative from Michigan. This effectively put the procedural timetable in motion, meaning comments on it are due by July 3, 2015.

It was explained that the “recommendations and next steps” will be developed once Section VI of the white paper pertaining to “Regulatory Responses to Price-Optimized Rating Schemes” is finalized.

Draft Survey of Actuarial Educational and Credentialing Organizations May Have Legal Issues

As part of its work on a 2014 charge to create a uniform definition of “Qualified Actuary” by July 1, 2015 for actuaries signing prescribed NAIC Statements of Actuarial Opinion, the Task Force was also asked to make a recommendation by the same deadline on the ability of Society of Actuaries (“SoA”) members who obtain the SoA fellowship in General Insurance (“GI”) and meet U.S. qualification standards to sign the Statements.

To assist in crafting its recommendation on the “SoA GI Track,” the Task Force proposed a survey, which subsequently drew significant concern for possibly over-stepping its charge.

“It’s odd that (the survey) would survey companies versus regulators over educational standards,” remarked Birny Birnbaum, the Center for Economic Justice Executive Director who attended the Task Force meeting yesterday.

Because of the shortage of time before the July 1 deadline, it was determined that the survey would not be offered for public comment, inasmuch as legal issues would have to be resolved beforehand.

NAIC legal counsel will explore the matter, as well as evaluate any possible legal issues with the survey, which had been addressed directly to insurers.

With an offer by the SoA to fund an independent review of its own education program qualifications, the Task Force also had outlined the roles of potential consultants who would be charged with coordinating a review of the SOA GI Track. It was agreed that, because of the July 1 deadline and the close relevance to the aforementioned survey, offering this draft for public comment would be postponed as well.

The Task Force will meet one more time on June 2 before its deadline, and then again on July 21 to review submitted comments on both the actuarial education documents and the price optimization draft white paper.

The price optimization white paper draft and previously submitted comments are available via the hyperlinks below. To access materials on the SoA GI matter, click here.

Should you have any questions or comments, please contact G. Donovan Brown at Colodny Fass (+1 850 545 8864 or DBrown@ColodnyFass.com).

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Price Optimization Draft White Paper Approved for Public Comment by NAIC Casualty Actuarial and Statistical Task Force; Actuarial Opinion Qualifications Debate Continues

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