Steer Clear Of Carrier Ratings, Insurers Urge NAIC Officials

Minneapolis

While the work of financial rating agencies is unsatisfactory, it's not a job insurance regulators should attempt, industry trade group leaders here warned.

There are concerns about how rating agencies have performed leading up to the financial crisis, both regulators and industry representatives agreed here at last week's National Association of Insurance Commissioners industry liaison session.

However, Dierdre Manna, vice president of industry, regulatory and political affairs for the Property Casualty Insurers Association of America, questioned whether transferring rating responsibilities to regulators comports with the NAIC's mission statement.

She also questioned whether it would be possible for the NAIC to fully separate regulatory and rating agency responsibilities.

Iowa Insurance Commissioner Susan Voss said the NAIC has discussed taking on some rating agency responsibilities, but she noted there has been no application filed.

Illinois Director of Insurance Michael McRaith noted there is collective discomfort with the role rating agencies have played during the financial crisis, and Ms. Voss said she was dissatisfied with the rating agencies' answers when questioned about their performance.

She acknowledged Ms. Manna's concerns, and asked if there was a way the NAIC could help the industry with its frustration regarding the rating agencies. Industry representatives and regulators agreed to continue discussing the matter.

The trade organizations also called on regulators to avoid the “siren song” of over-regulation due to complaints by consumer groups.

Real consumer protections come with having a vibrant insurance market with healthy competition, according to both David Snyder, vice president and assistant general counsel of the American Insurance Association, and Neil Alldredge, vice president of state and policy affairs for the National Association of Mutual Insurance Companies.

This competition is stifled, Mr. Alldredge said, when regulators respond to anecdotal evidence on issues with perceived controversy. He also said companies bear the brunt of the increased costs of over-regulation.

Efficient state regulation will stave off involvement from the federal government, Mr. Alldredge predicted, but he noted that regulators often lose focus on the real day-to-day issues–such as producer licensing–because the industry is often put on the defensive by peripheral controversies.

Mr. Snyder said regulators should focus on solvency protection and enforcing contractual obligations, adding that regulators and insurers should be partners in reducing risk.

Mr. McRaith said regulators try to understand insurer concerns on issues, but noted that the industry and the NAIC may not always agree on what constitutes true consumer protection.

Illustrating this point, industry representatives and regulators offered differing views on the issue of credit scoring (see related story on page 9).

Mr. Snyder pointed to generally decreasing insurance rates and a relatively low number of consumer complaints stemming from insurer use of credit history when setting rates. Regulators, on the other hand, questioned whether credit scoring is a surrogate for real underwriting, and noted concerns among legislators and consumers with the practice.

Ms. Manna of PCI also asked the NAIC to pursue a zero-growth budget this year due to the financial struggles of insurers, and called for more transparency regarding why some NAIC meeting sessions are closed to the industry and the public. Ms. Voss said the NAIC would take both issues into consideration.

Blain Rethmeier, AIA's senior vice president for public affairs, said he thought the session was “very productive.” He said industry members effectively laid out where carriers and regulators should find common ground regarding consumer protections.

In a statement, Ms. Manna said PCI appreciated that the NAIC will examine how it handles closed meetings.

“Particularly in this age of greater openness and transparency, it is important that the NAIC follows a process that ensures closed meetings are conducted only when necessary and that proper notice and explanation is provided,” she said.