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NAIC update: Fall 2018 National Meeting
The NAIC’s year ends quietly
As the National Association of Insurance Commissioners (NAIC) met in San Francisco for its Fall 2018 National Meeting, smoke from wildfires served as a constant reminder of just how critical insurance is in today’s world. The final meeting of the year was relatively lowkey, with several key issues remaining to be resolved, including new reinsurance credit models and the fate of the Annuity Suitability Model.
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NAIC Conference San Francisco: Final meeting of 2018
The banner headlines and big decisions usually associated with the final meeting of the year were absent from the Fall 2018 National Meeting. When the year began, it may have been reasonable to expect that by its last national meeting of 2018, the NAIC might have addressed the most serious and potentially the best of issues facing state regulation. Last-minute concerns stalled adoption of new reinsurance credit models consistent with the EU–US covered agreement. On the plus side, the new models are still scheduled for adoption at a special session of the plenary. The fate of changes to the Annuity Suitability Model Act is less immediately obvious. Many stakeholders expressed concerns for various reasons, and as of now, there is still clear potential for fragmentation.
In other news, November Congressional election results strengthened the possibility that a federal data security law would not be imposed on insurance, and even if such a law were to be approved, it would not preempt state insurance regulation.
The next meeting will see new faces. The term-limited host Commissioner Dave Jones is handing the baton to his successor, and turnover may be more than usual, given some statehouse election results. Perhaps by the April meeting in Orlando, we will be able to ascertain the impact of political changes on the NAIC’s agenda.
Highlights from the Fall 2018 National Meeting
Revised draft of annuity sales standards model moves forward
Chair Dean Cameron led Annuity Suitability Working Group discussions about the latest draft revision of the Suitability in Annuity Transactions Model Regulation (#275), which met both praise and opposition. Concerns were expressed that the proposed change would narrow the scope of the regulation. The working group planned to report its progress to the A Committee and expose the amended draft for comment.
Annuity sales suitability model work causes internal dissent
Ongoing differences among regulators concerning new standards for annuity sales were at the center of a lively discussion at the Life Insurance and Annuities (A) Committee meeting. The working group has received more than 400 pages of comments on the new suitability model but is waiting to see if anything the SEC or DOL does should be factored in. After much discussion and some dissension, the working group received an extension until the next national meeting.
LTC insolvency divides health, life insurers
An IAIS working group has finalized drafting of the first application paper on ICPs 12 and 16, which have been exposed for comment. ICP 12 covers market exit and resolution powers, and ICP 16 addresses enterprise risk management for solvency purposes. The group received and reviewed comment letters, including concerns over the Warrantech decision in Pennsylvania, which the task force will continue to monitor. NAIC comments will be directed through G committee, and a resolution paper is expected in January.
Reinsurance Task Force adopts new model
Stakeholders attending the meeting of the Reinsurance (E) Task Force heard that the current list of qualified non-US jurisdictions would only be good up until December 31, 2019. The task force also adopted a report from the Reinsurance Financial Analysis (E) Working Group (ReFAWG) identifying 29 reinsurers that were certified for passporting and were being monitored. The revised Credit for Reinsurance Models were a major topic of discussion, but the task force resisted requests for more time for concerns to be addressed and adopted the draft to be sent to its parent committee.
Cannabis insurance group continues study
The Cannabis Insurance (C) Working Group is charged with looking at individual state markets and developing a whitepaper with information about the architecture of the cannabis industry, available insurance, and what gaps there may be both in admitted and surplus lines. Cannabis industry associations have been very helpful and progress on the whitepaper is good. A California cannabis insurance case study revealed the availability of insurance, with claims so far primarily for theft or fire. Data is being gathered to develop actuarially sound pricing. For admitted insurers, the biggest concern for now is competing with surplus lines.
Complex models, big data use cause regulatory discomfort
Big Data (EX) Working Group discussions were wide-ranging, covering data accuracy, company validation methods, whether regulators have sufficient tools to evaluate appropriate data use (e.g., data from wearables to predict mortality), and questions about whether states should examine vendors. NAIC consumer representative Peter Kochenburger of UConn Law School said he believed big data could be a win for consumers and insurers, that concerns will continue to exist in the absence of regulatory tools, and it is important to help consumers understand data use.
Health care update
The Health Insurance and Managed Care (B) Committee discussion focused on rising health care premiums, dynamics that contribute to the continuing increase, and the potential role of state and private insurance providers outside of the federal exchange in managing premiums and out-of-pocket costs for consumers. Discussions also included analyzing the impact of federal regulation, including the Affordable Care Act (ACA), and identifying opportunities to innovate outside of the federal exchange to reduce costs.
The Casualty Actuarial and Statistical Task Force (CASTF) update began with discussion on appointed actuary charges and comments received, with the committee’s initial recommendation to move forward without changes based on the comments received so far. The CASTF also discussed a whitepaper in progress on the best practices and necessary data items for regulatory review of generalized linear models (GLMs) used for rate-making. Other topics included predictive analytics update, NPR mortality adjustment, and YRT reinsurance—premium rate increase treatment.
Our full NAIC meeting update provides a table with information on accounting and reporting changes discussed, adopted, and exposed by the Statutory Accounting Principles (E) Working Group, the Accounting Practices, and Procedures (E) Task Force, and the Financial Condition (E) Committee during the Fall 2018 National Meeting.