Editor's Note: Special thanks to Summer Associate Julia Ditkoff for her contributions to this article.
On June 1, 2023, the Federal Advisory Committee on Insurance (“FACI”) held its June meeting. Below is a summary of the topics discussed with emphasis on areas we found particularly interesting. FACI intends to hold two more meetings in 2023 (on September 26 and December 13).
1. Federal Insurance Office (“FIO”) Update
Steven Seitz (Director; FIO) provided a general update on the FIO’s activities and areas of focus, which included the following:
Macroprudential Issues: Mr. Seitz called out the following specific subjects of interest: (i) how the insurance sector is being affected by higher interest rates; (ii) increased focus on capital adequacy; (iii) growing interconnectedness of the insurance industry with other financial systems and the offshore market; and (iv) the increasing size of insurers and attendant implications for insurance regulators. In general, Mr. Seitz opined that it was a good time for the FIO to sharpen its focus on the National Association of Insurance Commissioner’s (“NAIC’s”) macroprudential initiatives and the NAIC Macroprudential Working Group’s specific five key areas for implementation. Mr. Seitz then discussed the development of macroprudential risk assessment methods and the ongoing need for state regulators and the FIO to regularly evaluate tools used to identify events that may cause or exacerbate financial stress. Specifically, Mr. Seitz stated that the FIO was looking at liquidity stress testing processes and rigor, the regulation of collateralized loan obligations (with an eye on liquidity solvency issues), and how to keep the state-based system strong and responsive to macroprudential developments. We found Mr. Seitz’s comments interesting in the context of the Financial Stability Oversight Counsel’s (“FSOC’s”) Issuance for Public Comment of its Proposed Analytic Framework for Financial Stability Risk and Proposed Guidance on Nonbank Financial Company Determinations (April 21, 2023; available at https://home.treasury.gov/news/press-releases/jy1432).
Climate Change: Mr. Seitz stated that the FIO is nearing completion of a report assessing climate-related gaps in the insurance industry, and referenced recent insurer trends in California as evidence that this workstream was especially timely. Mr. Seitz also discussed the results of an NAIC survey on concerns about climate change, and the FIO’s proposed data collection relating to homeowners insurance, which will be issued to certain property and casualty insurers.
Catastrophic Cyber Incidents: Mr. Seitz stated that the FIO continues to assess the need for some form of federal insurance response and/or backstop in the context of catastrophic cyber incidents under the guidance of the Biden Administration.
Personal Auto Insurance (Access): Mr. Seitz made general reference to the FIO’s awareness of and work relating to the availability and affordability of personal automobile insurance. At this time, Birny Birnbaum (Executive Director; Center for Economic Justice) made repeated requests for updates on whether, to what extent, and when the FIO would pursue an update to the personal automobile insurance affordability report. Mr. Seitz responded that this report was a priority for the FIO, but declined to provide a set timeline with regard to the update.
2. Presentation Regarding Insurance Digital Maturity & the Future of Technology in Insurance (ACORD; Bill Pieroni)
Bill Pieroni (President & CEO; ACORD) presented to the Committee regarding Insurance Digital Maturity and the Future of Technology in Insurance. We made particular note of Mr. Pieroni’s comments regarding the realistic medium-term potential for the use of artificial intelligence in the insurance industry, as well as data that ACORD collected on the critical components of successful InsurTech startups. Mr. Birnbaum requested Mr. Pieroni’s assessment of regulatory developments in the area of insurance-focused technologies. In response, Mr. Pieroni suggested that given the “early days” nature of regulatory development in this area it is not yet realistic to reach a conclusion on approach. However, Mr. Pieroni surmised that regulation in this area will be critical.
3. FACI Subcommittee Updates
Following the Climate Subcommittee’s brief report, Mr. Birnbaum requested an update on when the FIO intends to issue its climate risk data call. Mr. Seitz responded, in a manner similar to his reply in respect of updating the personal automobile report, that it was a priority for the FIO, but that a particular timeframe was not yet set. Additionally, the Availability and Affordability of Insurance Products and International Subcommittees reported that limited activity had been undertaken since their last reports.
4. Update on International Association of Insurance Supervisors (“IAIS”) Key Projects
Last, the FIO presented on current key International Association of Insurance Supervisors (“IAIS”) workstreams, which included items relating to comparability assessments, climate change, diversity, equity, and inclusion, macroprudential monitoring, and cyber risks including third-party outsourcing.
We continue to monitor developments at the FIO, FSOC, and FACI in relation to these issues, along with attendant Federal legislation, regulations, and guidance.
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