There was a collective sigh of relief at the final meeting this year of the National Association of Insurance Commissioners. It was an exhaustive session, and from the looks on the faces and tone of voices, the impression was that it was a much busier year than usual.
Health care was the all-consuming topic this year. More than once, in casual conversation, attendees said it sucked up all the attention.
Regulators worked fast and furious, in relation to the usual deliberate pace they are often criticized for, to get a consensus regulation on the desk of the Secretary of Health and Human Services before the end of the year.
That regulation, governing medical loss ratio, broadly sets out how many premium dollars health care insurers have to spend on patient care.
Under the new law, small and medium-size insurers, determined by the number of lives they insure, must spend 80 percent of their premium on patients and large insurers must spend 85 percent.
Is this a good formula? Will policyholders benefit? Will insurers be harmed?
Everyone has an opinion, but the reality is no one knows and anyone who says they do is fooling themselves.
No matter where one comes down on the issue, the latest exercise demonstrates that when push comes to shove, the NAIC can work collectively on a common cause. It can do so quickly. All it needs is a little push, like a federal mandate.
What has not gotten as much attention is the fight over the surplus lines premium taxes as mandated under the Nonadmitted and Reinsurance Reform Act. The NAIC remains under the gun to establish standards laid out by the Dodd-Frank Financial Reform Act. The idea is to have one standard for the collection of premium taxes from the surplus lines industry, making life easier for wholesale brokers, streamlining their business and cutting costs.
That was the intent. Personally, I was under the impression—and I think many in the industry were, too—that life would get easier with the reform. One standard, one state to pay, folks get their insurance, states collect their taxes, brokers make a profit, and then we all live happily ever after. But life doesn’t always work out the way we expect.
Much to the chagrin of the surplus lines community, it appears that this piece of legislation is not the cure-all, end-all that everyone hoped. It’s complicated.
The states have to figure out the mechanism they are going to use to get their share of the surplus lines pot. The NAIC is on the verge of adopting a model rule—a “bare bones,” plan Louisiana Insurance Commissioner Jim Donelon called it—to collect the taxes. What the model won’t do is compel the states to enter into a compact to create harmonious regulation between the states. Instead, brokers will be governed by the regulations of the home state.
This is not the harmonious working relationship the surplus lines industry envisioned. There is hope that state legislators will pursue a more inclusive plan, closer to what the industry seeks.
Ultimately, this is a test. Globalization isn’t going away, and more and more American businesses can’t rely on wholly domestic business for growth. Europe has the edge in having standardized regulation across borders. If the United States wants to do the same, it has to present the world with a unified set of regulations.
If the NAIC can’t figure out how to do that, how can anyone expect state-based regulation to survive?
Mark E. Ruquet
Associate Editor
