NAIC Braces For Regulatory Challenges

The National Association of Insurance Commissioners faces a challenging year as it prepares to tackle in 2003 a slate of regulatory issues–some ongoing, some newly minted.

Among the issues outlined by Mike Pickens, NAIC vice president and Arkansas Insurance Commissioner, are the following:

Insurance availability and affordability. This issue arises in several lines of insurance, and Mr. Pickens said that NAIC continues to monitor rates in the current hard market. He also indicated that the NAIC is aware of the factors leading to availability and affordability problems.

He explained that with the downturn in the stock market, insurers can no longer subsidize low premiums with equity gains, leading them to press for rate increases. At the same time, Mr. Pickens acknowledged that loss experience often justifies large rate increases.

Mr. Pickens also noted that access and affordability problems as to medical malpractice insurance–which has been the case in various states such as Florida, New Jersey, Nevada and Pennsylvania–also impact patient access to healthcare.

Access and affordability issues have also cropped up in the areas of homeowners insurance and auto insurance in several states, he said, with large insurers in those states either pulling out or restricting the amount of business they write. This can cause the insurance market, particularly in the smaller states, to become “strained,” Mr. Pickens noted.

Federal terrorism insurance backstop law. How to implement the law at the state level presents the NAIC with an opportunity to provide leadership, Mr. Pickens said.

He noted, for example, that many insurers are posing technical implementation questions to individual state regulators and the NAIC. Mr. Pickens said that providing answers that are substantially the same all across the country would benefit both state regulators and insurers.

While the insurance industry struggles with how to price terrorism risk, for consumers availability and affordability are key concerns, Mr. Pickens said. Therefore, the NAIC will scrutinize how much insurers charge for terrorism coverage, he said.

Insolvencies. Mr. Pickens noted that state regulators around the country have been dealing with a number of insolvencies by large insurers, such as in the workers compensation area.

Mr. Pickens would like the NAIC to develop an “insolvency agenda” in the coming year for dealing with issues surrounding the insolvency of large insurance companies, such as ensuring the continuation of claims payments after a bankruptcy order is entered.

Additionally, to make the work of state regulators more efficient and better coordinated, Mr. Pickens would like to see the NAIC develop a receivership databank, similar to the bankruptcy databank maintained by the federal bankruptcy courts.

Interstate compact. Mr. Pickens said that the NAIC will be voting on an interstate compact on speed-to-market at its Winter National Meeting in San Diego this week. The compact would create a single filing point for insurance products.

Mr. Pickens said the NAIC will continue to work with the National Conference of State Legislators and the National Conference of State Insurance Legislators to get their backing for the interstate compact.

He also stated that while several state regulators have agreed to the concept and theory of an interstate compact, before presenting the idea in their states they want to know what the product standards are. Mr. Pickens said that the NAIC will work on developing those standards in 2003.

Market conduct. The NAIC could become quite active in this area when an expected report from the General Accounting Office comes out next spring, Mr. Pickens said.

The report will be based on findings of the GAO, which traveled throughout the country this past year to survey the market-conduct activities of state insurance regulators. Mr. Pickens called the effort “the most extensive study to date” on state market conduct procedures.

He added that the NAIC remains aware of the need to find ways to coordinate market conduct examinations to make them more efficient and cost-effective. More targeted examinations and the development of best practices could help in these efforts, Mr. Pickens said.

Privacy. Mr. Pickens said that the NAIC would like to see more uniformity in the regulation of privacy issues around the country.

He also said that it may be time to develop and undertake a joint privacy examination of the efforts of insurance companies to comply with state privacy mandates. Mr. Pickens believes that Congress will be requiring such an examination and that the states should therefore take the lead in targeting just how well compliance efforts are going.

Accounting practices and procedures. Mr. Pickens said that the development of international accounting standards “is where the action is.” The NAICs Accounting Practices and Procedures (E) Task Force will continue efforts to develop a standard that blends the best of the European and the American accounting oversight systems.

Class action reform. Mr. Pickens said that in 2003 he would like to see a comprehensive, open debate of this issue at the NAIC, which up to now has been engaged in fact-finding.

Mr. Pickens noted that while class actions can be effective in promoting the interests of insurance consumers, there is evidence that some class actions actually interfere with the authority and work of state insurance regulators. This occurs when state find that their authority is often usurped or effectively nullified by court rulings in class actions in other states.

He believes that “clear lines” must be drawn as to the issues that are properly in the judicial domain and the issues in the state regulatory domain. He also would like to see state courts give more deference to the state insurance regulators, just as the federal courts pay deference to administrative bodies when considering lawsuits.

Mr. Pickens suggested that one way in which the NAIC can proactively bring about these reforms is by working more closely with national judges associations to spotlight problems and possible solutions.

Finally, Mr. Pickens said that another optional federal chartering bill is likely to be introduced in Congress in 2003. This means that the NAIC will continue to make its case as to why the regulation of insurance is best achieved at the state level rather than at the federal level.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, December 8, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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NAIC Braces For Regulatory Challenges

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