Insurance innovation meets regulatory compliance

Solvency: Reinforcing industry capital for long-haul mileage

To manage future oversight of investment risk, the NAIC is striving to get fine-tuned assessments of structured securities holdings and measurements of cash flow, attendees learned. NAIC leadership also stated its intent to seek a more modernized Economic Scenario Generator and continue implementing the Asset Adequacy Testing framework for these purposes.

Regulators at the meeting acknowledged the insurance industry’s desire to see coordination by the NAIC on its various solvency initiatives, such as the modeling of collateralized loan obligations. Stakeholders were informed of state regulators’ efforts to arrive at a reasonably conservative risk-based capital (RBC) factor.

Climate: NAIC’s inaugural climate strategy sticks its landing

Attendees heard about the newly adopted NAIC National Climate Resilience Strategy for Insurance, which aims to:

• Collect data to help identify and close protection gaps
• Create a blueprint for the future of flood insurance
• Leverage the recently created NAIC Catastrophic Modeling Center of Excellence
• Create new resilience tools
• Advocate for pre-disaster mitigation funding
• Improve solvency tools, such as scenario analysis

Regulators expressed interest in catastrophe modeling products that adjust frequency and severity of hurricanes and wildfires through 2040 or 2050. However, some insurance industry representatives expressed concern that this could be used to develop an additional RBC charge.

Technology, artificial intelligence, and data: Use and ongoing developments

The NAIC announced new committee work to help meet the challenges of a fast-paced technology environment.

Two collaboration forums were set up to focus on data standardization and the development of tools for regulators as they evaluate and work with AI and algorithm-driven systems. The 2024 meeting also saw the launch of a task force charged with developing and proposing a framework for the regulatory oversight of third-party data and predictive models. Finally, attendees learned that consumer privacy oversight, with a potential new model law, is back for consideration after being inactive for more than half a year.

NAIC accounting update

Accounting and reporting changes were discussed, adopted, or exposed during the 2024 Spring National Meeting. New Statutory Accounting Principles (SAP) concepts (formerly known as substantive changes), which are changes in accounting principles or methods of applying the principles, have explicit effective dates. All SAP clarifications (formerly known as nonsubstantive changes), which are changes that clarify existing accounting principles, are effective upon adoption, unless otherwise noted.

Moving the agenda forward in a new era

The NAIC Spring National Meeting was aspirational, a nod to the future, while underscoring the human element as AI increasingly appears to take the wheel. Meanwhile, regulators encouraged the industry to innovate—even as they emphasized their availability to craft, tailor, and resize or refit guardrails for this innovation.

Endnote

¹ Puneet Kakar, “Financial inclusion and the underserved life insurance market, part two,” Deloitte Insights, September 15, 2021.