NAIC Unveils Modernization Roadmap

By Jim Connolly

NU Online News Service, June 15, 3:22 p.m. EDT, SanFrancisco?The National Association of InsuranceCommissioners leadership meeting here has announced a roadmap formodernizing and unifying the state-based insurance regulationsystem.[@@]

The framework addresses 15 areas targeted for modernizationincluding: market conduct uniform standards, company and agencylicensing, life insurance, commercial and personal linesproperty-casualty insurance, and an interstate compact for healthinsurance.

Insurers said that offering a roadmap is a good first step, butthat the framework needs much more in the way of details.

NAIC President and South Carolina Director Ernst Csiszar saidthat it is an "evolving document" and details will be incorporatedas the document develops.

Mr. Csiszar said that even if insurance reform is not addressedin the few remaining days of the current Congressional session, theissue is going to come up again in Washington. Consequently, hesaid, regulators have to develop a plan to respond to a request byHouse Financial Services Chairman Michael Oxley to assist thecommittee in modernizing state insurance regulation.

Points he made on the model include the importance of being ableto access FBI fingerprints to advance uniformity of producerlicensing and the possibility of making the market conduct processan accreditation standard at some point in the future.

According to Mr. Csiszar, if NAIC had had access to FBIfingerprints, state insurance regulators could have been alertedearlier to the $200-million-dollar fraud scheme perpetrated byMartin Frankel.

On the issue of market conduct, Mr. Csiszar said that,ultimately, when the program is further along, it could become anaccreditation standard.

The NAIC needs to continue to be engaged with Congress, said JimPoolman, NAIC vice president and North Dakota insurancecommissioner.

He added that a market conduct accreditation process is areasonable goal since NAIC's financial accreditation process hasworked so well.

The roadmap states that market conduct uniform standards arebased on five preliminary elements including: centralized datacollection, structured and uniform market analysis, uniformexamination procedures, and interstate collaboration.

Work is underway, according to the roadmap, to streamlinecompany licensing through the NAIC's ALERT system and producerlicensing through a central electronic licensing system based on100 percent reciprocity if states have direct access to FBIfingerprint data and if they can share information on aconfidential basis.

Life insurance reform would include adoption of an interstatecompact and its accompanying set of product standards.

For commercial lines, NAIC would establish a use-and-file systemfor rates and rating systems, a file-and-use system for policyforms with a 30-day waiting period, and a requirement that astate's policy form requirements would apply only to insurancewritten for individual commercial risks in the state.

Among the points dealing with the framework's handling ofpersonal lines is a filing review standards checklist andrecognition that state legislatures should determine theappropriate regulatory framework for personal lines.

Dave Snyder, a representative with the American InsuranceAssociation, Washington, said that the roadmap suggests that themomentum for reform is growing and that NAIC wants to be part ofthat reform. But, he added, "they need to use interstate highwaysrather than streets to get there."

There has been legislation introduced in four states, includingSouth Carolina, Oklahoma, Massachusetts and Rhode Island, tomodernize regulation such as flex rating for automobile insurance,said Robert Zeman, a representative with the Property CasualtyInsurers Association of America, Des Plaines, Ill. But more reformneeds to be introduced in the states, he continued. And, theroadmap must better address reforms on personal lines, headded.

Roger Schmelzer, representing the National Association of MutualInsurance Companies, Indianapolis, said that he told regulatorsthat if reform is introduced, then it must be a state basedsolution.

Michael Lovendusky, a representative with the American Councilof Life Insurers, Washington, commented, "I regret to say thatafter a cursory look at the 20 pages, it seems that NAIC has failedto take full advantage of the opportunity that the House ofRepresentatives is offering to the states?We do not see an urgencyfor reform."

He added that "there is a slow motion erosion of the insurancebase to banks and securities firms."