The National Association of Insurance Commissioners (NAIC) held its 2021 Summer National Meeting from August 14 to 17 in Columbus, Ohio. The meeting was held in a hybrid in-person and remote format due to the ongoing COVID-19 pandemic, with most industry representatives attending remotely.
The agenda for this National Meeting was again limited, with a number of NAIC committees, working groups, and task forces meeting in the weeks prior to, or immediately following, the Summer National Meeting. Consequently, we offer highlights from both the Summer National Meeting and other meetings that took place recently. Notable developments include the following:
- The NAIC announced the development of a new “letter” committee to focus on artificial intelligence, innovation, and cybersecurity. A drafting group will be appointed to draft a mission statement and propose charges for consideration by the Executive (EX) Committee and Plenary during the 2021 Fall National Meeting in San Diego, California.
- Prior to the Summer National Meeting, the Special Committee (EX) on Race and Insurance adopted charges for 2021/2022 for itself and its five Workstreams. The charges are expansive and include, among other items, work related to research and analysis of “insurance, legal, and regulatory approaches to addressing unfair discrimination, disparate treatment, proxy discrimination, and disparate impact.”
- The Executive (EX) Committee and Plenary adopted amendments to the Statement on Statutory Accounting Principles (SSAP) Number 71 – Policy Acquisition Costs and Commissions pertaining to levelized commissions that are paid to a third party and then distributed to agents as non-levelized commissions. The amendments clarify that insurers should recognize and report such commissions as loans during the first year of the contract.
- The Executive (EX) Committee and Plenary voted to adopt revisions to the Process for Evaluating Qualified and Reciprocal Jurisdictions that incorporate the “reciprocal jurisdiction” credit for reinsurance scheme in light of the 2019 amendments to the NAIC Credit for Reinsurance Model Law (#785) and Credit for Reinsurance Model Regulation (#786).
We do not cover every meeting in this report; rather, we comment on select noteworthy developments and matters of interest to our clients.
1. NAIC Announces Development of New “Letter” Committee for Innovation and Cybersecurity
2. Big Data and Artificial Intelligence (EX) Working Group Finalizes Big Data Survey for Auto Insurers; Could Serve as Framework for Future Data Calls
3. Privacy Protections Working Group Advances Privacy Policy Statement as More States Pass Consumer Data Privacy Laws
4. Additional Developments Related to Technology and Privacy
i. Market Regulation and Consumer Affairs (D) Committee Hears Claims Optimization Presentation
ii. E-Commerce Working Group to Study UETA Adoption and Pandemic-Related E-Transaction Provisions
iii. Accelerated Underwriting (A) Working Group Continues to Revise White Paper
1. Special (EX) Committee on Race and Insurance Receives Subcommittee Updates
2. Producer Licensing (D) Task Force Surveys Exam Vendors on Exam Biases; Considers Amendments to Section 1033 Waiver Guidance
3. Climate Risk and Resiliency (EX) Task Force Receives Working Group Reports
4. FIO Issues Information Request on Climate-Related Financial Risks in the Insurance Sector
1. Executive (EX) Committee and Plenary Adopt SSAP No. 71 Amendments Over Objections
2. Financial Condition (E) Committee Defines “Substantive” and “Non-Substantive” after SSAP No. 71 Debate
3. Financial Stability (E) Task Force Adopts Liquidity Stress Test Framework
4. Group Capital Calculation (E) Working Group Exposes GCC Materials for Comment
5. Financial Regulation Standards and Accreditation (F) Committee Considers Waiving Public Exposure Period for GCC-Related Model Holding Company Act Amendments
6. SAPWG Continues Work on Proposed Bond Definition
1. International Insurance Relations (G) Committee Discusses IAIS Papers
2. Additional International Regulatory Developments
1. Life Insurance and Annuities (A) Committee Poised to Discontinue Work of Life Insurance Illustrations (A) Working Group
2. Financial Regulation Standards and Accreditation (F) Committee Adopts Revisions to XXX/AXXX Model Regulation
1. Property and Casualty Insurance (C) Committee Postpones Adoption of Pet Insurance Model Law
2. Surplus Lines (C) Working Group Seeks to Update Standard Form Trust Agreement
3. Market Regulation and Consumer Affairs (D) Committee Adopts Digital Claims Elements for Home and Auto Blanks
4. Blanks (E) Working Group Defers Consideration of “Exposure Data” Annual Statement Supplement for Home and Auto Financial Statements
1. Executive (EX) and Plenary Adopts Process for Evaluating Qualified and Reciprocal Jurisdictions
2. Reinsurance (E) Task Force Considers Passporting Process for Certified and Reciprocal Jurisdiction, Provides State Credit for Reinsurance Adoption Update
3. Accounting Practices and Procedures (E) Task Force Adopts Model Audit Rule Implementation Guide Revisions
4. Executive (EX) Committee and Plenary Adds Receivership Language to Insurance Holding Company Models
1. NAIC Announces Development of New “Letter” Committee for Innovation and Cybersecurity
The Innovation and Technology (EX) Task Force announced that it will begin developing charges and a mission statement for a new “letter” committee that is likely to be named the Artificial Intelligence, Innovation, and Cybersecurity (H) Committee. A drafting group will be appointed to create a mission statement and charges for the new committee, which will be exposed for public comment in fall 2021. It is expected that the Executive (EX) Committee and Plenary will consider adding the new H Committee during the 2021 Fall National Meeting, which is tentatively scheduled to be held in San Diego, California, from December 13 to 16, in an in-person format. If so, it will be the first National Meeting to be held exclusively in person since the 2019 Fall National Meeting in San Francisco, California.
The potential addition of a new committee dedicated to artificial intelligence, innovation, and cybersecurity comes as the NAIC looks to continue the implementation of its strategic plan, known as “
State Ahead.” The
strategic blueprint – which was initially designed to last through 2020 but extended due to the COVID-19 pandemic – places a significant focus on studying developments related to innovation and emerging technology in insurance and cybersecurity, among other items. This focus was initially evidenced by the creation of a number of tech- and cyber-related working groups and task forces that report directly to the
Executive (EX) Committee, including the Innovation and Technology (EX) Task Force, which notably is comprised of the commissioners of each state, the District of Columbia, American Samoa, and the Northern Mariana Islands. The potential new H Committee further evidences the priority that the NAIC and its membership are placing on innovation and cybersecurity, and its expectation that insurtech and cybersecurity issues will demand the close attention of state insurance regulators well into the future.
2. Big Data and Artificial Intelligence (EX) Working Group Finalizes Big Data Survey for Auto Insurers; Could Serve as Framework for Future Data Calls
During its July 9 meeting, the
Big Data and Artificial Intelligence (EX) Working Group announced its completion of a
Big Data Survey concerning auto insurers’ use of artificial intelligence (AI) and machine learning (ML).
Innovation and Technology (EX) Task Force Vice Chair and Rhode Island Superintendent Beth Dwyer noted that the current draft of the survey includes definitions for “artificial intelligence” and “machine learning,” and respondents’ recognition of the distinction between the two terms will be critical to obtaining helpful information. To maximize the likelihood that information provided as part of the survey is afforded confidential treatment – something about which stakeholders remain concerned – it was announced that the survey would be issued under the auspices of the examination authority and associated confidential treatment provisions of the insurance codes of Connecticut, Illinois, Louisiana, Iowa, Nevada, North Dakota, Pennsylvania, Rhode Island, and Wisconsin.
The Working Group expects to issue a draft report of the Big Data Auto Survey findings in October 2021, with a final report to follow in December 2021. The Big Data Auto Survey will be sent to nearly 200 auto insurers in late August or early September, and the NAIC expects insurers to submit responses by September 30. Although Innovation and Technology (EX) Task Force Chair and Iowa Commissioner Doug Ommen made clear that the Big Data Auto Survey will have a narrow focus on private passenger auto insurance, the Task Force and Working Group appear poised to use the auto survey as a test case for studying the use of AI and ML in the homeowners and life lines of business sometime in the future.
3. Privacy Protections Working Group Advances Privacy Policy Statement as More States Pass Consumer Data Privacy Laws
On July 12, the
Privacy Protections (D) Working Group provided an overview of a revised draft
Privacy Policy Statement that could serve as the framework for establishing minimum consumer data privacy standards for the insurance industry. Comments focused on six consumer privacy rights to be addressed by the Policy Statement: (1) the right to opt out of data sharing, (2) the right to opt in to data sharing, (3) the right to make corrections to information, (4) the right to delete information, (5) the right to data portability, and (6) the right to restrict the use of data. Working Group Chair Cynthia Amman (MO) noted that the Policy Statement could eventually be incorporated into either the NAIC
Privacy of Consumer Financial and Health Information Model Regulation (#672) or a new NAIC model. The Working Group expects to present a final draft Policy Statement to the
Market Regulation and Consumer Affairs (D) Committee during the 2021 Fall National Meeting. The Working Group is also likely to consider the issue of data ownership as a separate workstream in the future.
In addition to NAIC developments, certain states continue to pass and implement consumer data privacy laws. Just days before the Summer National Meeting, Colorado Governor Jared Polis (D) signed the Colorado Privacy Act (ColoPA) into law. With many similarities to the California Consumer Privacy Act (CCPA), the California Privacy Rights Act (CPRA), the Virginia Consumer Data Protection Act (CDPA), and Europe’s General Data Protection Regulation (GDPR), and companies that are already compliant – or that are working toward compliance – with these other laws will also have a substantial advantage when it comes to ColoPA compliance. To learn more about the nuances and consumer protections offered by ColoPA, read our
Legal Alert.
4. Additional Developments Related to Technology and Privacy
• Market Regulation and Consumer Affairs (D) Committee Hears Claims Optimization Presentation
The Market Regulation and Consumer Affairs (D) Committee received a presentation on claims optimization from University of Connecticut School of Law Professor Peter Kochenburger. Professor Kochenburger’s presentation focused on the use of Big Data and AI to predict whether a policyholder, claimant, or beneficiary would be willing to settle a claim for less than its fair market value. Kochenburger also noted that underpayment strategies could be modeled and applied more precisely to specific policyholders. Although Kochenburger noted that he is not aware of any insurer that is actually leveraging Big Data and/or AI to undertake such actions (and that any such action would be in violation of multiple state laws, including state Unfair Trade Practice Acts), he encouraged the Committee to (1) require insurers to regularly report on the algorithmic models they utilize in adjusting claims and the insurers use of non-claim-related data to ensure that claims payments and settlements are fair and (2) evaluate insurers’ predictive models to ensure compliance with current law.
• E-Commerce Working Group to Study UETA Adoption and Pandemic-Related E-Transaction Provisions
The E-Commerce Working Group announced plans to issue surveys to understand states’ adoption and interpretation of the Uniform Electronic Transactions Act (UETA) and other electronic transactions laws, many of which were temporarily suspended by legislative action or executive order during the COVID-19 pandemic. The Working Group plans to meet again in September to continue its drafting efforts. The Working Group suggested that the UETA survey would be completed by state insurance departments, not by stakeholders.
• Accelerated Underwriting (A) Working Group Continues to Revise White Paper
The
Accelerated Underwriting (A) Working Group received a report from White Paper Subgroup Commissioner Grace Arnold (MN) regarding the
latest iteration of the Accelerated Underwriting white paper. Commissioner Arnold noted that at least three additional iterations of the white paper are expected.
1. Special (EX) Committee on Race and Insurance Receives Subcommittee Updates
The Special (EX) Committee on Race and Insurance met during the Summer National Meeting to receive updates from each of its five Workstreams. The discussion centered around the Committee’s commitment to study issues through data-driven approaches, utilizing actuarial, statistical, big data, and AI to analyze predictive modeling and price algorithms. Workstream Three (regarding access to insurance in the property/casualty insurance market) indicated that it will begin collaborating with stakeholders in September to consider what diversity, equity and inclusion (DEI) issues the Workstream should consider for further study – including whether any information gaps exist – and how the Workstream can support efforts already set in motion by the industry. Workstream Two (regarding DEI within state insurance departments and the NAIC) reported that it would consider adding a charge to determine how to engage more consumer groups in the regulatory process. Workstream Five (regarding access to insurance in the health insurance market) reported on health insurance efforts around data collection and briefly highlighted challenges to collecting sociodemographic data. Workstream One (regarding industry diversity and inclusion) and Workstream Four (regarding access to insurance in the life insurance market) were not a point of focus during the Summer National Meeting.
The Special Committee also received a presentation from Dr. Robert Klein (National Association of Mutual Insurance Companies) regarding his findings that there is an actuarially sound correlation between higher loss ratios and neighborhoods with lower-income residents. Dr. Klein cautioned that unfair discrimination could still result from lack of availability to insurance and unfair marketing practices, and he encouraged further study of the availability of insurance and marketing schemes. The Special Committee also received presentations from (1) Birny Birnbaum (Center for Economic Justice) regarding so-called “proxy” discrimination and associated practices insurers should undertake to ensure that they are not incorporating systemic or unconscious racial bias into algorithms, (2) Alex Timm (Root) contending that a credit score is not reflective of an individual’s ability to drive, and (3) insurance trade associations regarding their members’ DEI efforts.
Prior to the Summer National Meeting, on July 21, the Special Committee adopted
2021/2022 Charges for itself and each of its five Workstreams. Among other items, the 2021/2022 Charges include:
- Serving as the NAIC’s coordinating body on identifying issues related to 1) race, diversity, and inclusion within the insurance sector, 2) race, diversity, and inclusion in access to the insurance sector and insurance products, and 3) practices within the insurance sector that potentially disadvantage people of color and/or historically underrepresented groups.
- Conducting research and analysis to identify issues and develop specific recommendations on action steps state insurance regulators and companies can take to improve the level of diversity and inclusion in the industry.
- Researching best practices among state insurance departments on DEI efforts and developing forums for sharing relevant information among states and with stakeholders, as appropriate.
- Conducting research and analysis of insurance, legal, and regulatory approaches to addressing unfair discrimination, disparate treatment, proxy discrimination, and disparate impact, and making recommendations for statutory or regulatory changes and additional steps, including:
- The impact of traditional life insurance underwriting on traditionally underserved populations, considering the relationship between mortality risk and disparate impact; and
- Developing analytical and regulatory tools to assist state insurance regulators in defining, identifying, and addressing unfair discrimination in property/casualty (P/C) insurance, including issues related to:
- Rating and underwriting variables, such as socioeconomic variables and criminal history, including:
- Identifying proxy variables for race,
- Correlation versus causation, including discussion of spurious correlation and rational explanation,
- Potential bias in underlying data, and
- Proper use of third-party data.
- Disparate impact considerations.
- Considering enhanced data reporting and record-keeping requirements across product lines to identify race and other sociodemographic factors of insureds, including consideration of legal and privacy concerns, and considering a data call to identify insurance producer resources available and products sold in specific ZIP codes to identify barriers to access.
2. Producer Licensing (D) Task Force Surveys Exam Vendors on Exam Biases; Considers Amendments to Section 1033 Waiver Guidance
On August 4, the Producer Licensing (D) Task Force discussed an anticipated referral from the Special (EX) Committee on Race and Insurance that would direct the Task Force to provide a report on the availability of producer licensing exams in foreign languages, the steps exam vendors have taken to mitigate cultural bias, and the number and location of producers by company compared to geographic demographics. The Task Force is currently surveying exam vendors about the issue and will report additional developments as they become available.
The Task Force also announced that it will review the NAIC’s
Guidelines for State Insurance Regulators to the Violent Crime Control and Law Enforcement Act of 1994 (1033 Guidelines), with a focus on how to simplify the guidelines for use by state insurance regulators as they assess the impact of criminal convictions and work toward greater consistency in the review of 18 USC § 1033 “Waiver” requests. The 1033 Guidelines were last updated in 2011. In general, 18 USC § 1033 precludes certain persons who are convicted of a felony involving dishonesty or breach of trust from willfully engaging in or participating in the business of insurance, and subjects any person who willfully employs or permits such a prohibited person from participating in the business to criminal liability, unless the prohibited person obtains written consent from the chief insurance regulatory official of the state or states where he or she intends to participate in the business of insurance.
To that end, the Task Force discussed a new pilot program undertaken by the Pennsylvania Department of Insurance (PA DOI) designed to provide Section 1033 Waiver guidance to insurance agents with criminal records. Specifically, Pennsylvania’s
Preliminary Licensing Determination Process provides guidance to applicants with criminal records on how their specific convictions, history, and background may affect their ability to successfully apply for an insurance producer license. The PA DOI is offering this service to individuals working toward rehabilitating themselves and securing a career in the insurance industry.
3. Climate Risk and Resiliency (EX) Task Force Receives Working Group Reports
The Climate and Resiliency (EX) Task Force met on August 15. The Task Force received reports from each of its working groups, with particular focus on property and casualty workstreams. The Climate Risk Disclosure Workstream, led by Oregon Director Andrew Stolfi, updated the Task Force on its recent discussions regarding state efforts concerning climate risk disclosure data calls. Specifically, Director Stolfi suggested that insurer climate risk disclosures should remain subject to public disclosure and noted that the Workstream will meet in the coming days to draft updated, insurer-specific climate risk disclosure questions that will be exposed for public comment by the end of 2021. As of July 2021, 15 states require certain insurers to submit either the NAIC Climate Survey or the Task Force on Climate-Related Financial Disclosures Survey, with eight states (Delaware, Massachusetts, Maine, Maryland, Oregon, Pennsylvania, Rhode Island, and Vermont) and the District of Columbia requiring the disclosures for the first time.
The Task Force also received a report from the Solvency Workstream led by Commissioner Kathleen Birrane (MD). The Solvency Workstream announced that it is looking at prudential tools to measure and manage climate-related risks, and announced that it may consider new climate-related solvency regulations or reporting obligations at a later date.
4. FIO Issues Information Request on Climate-Related Financial Risks in the Insurance Sector
On August 31, the Federal Insurance Office (FIO) issued a
Request for Information to solicit public comments on FIO’s future work relating to the insurance sector and climate-related financial risks. FIO’s efforts will focus on three initial climate-related priorities: (1) assessing climate-related issues or gaps in the supervision and regulation of insurers, including their potential impacts on US financial stability; (2) assessing the potential for major disruptions of private insurance coverage in US markets that are particularly vulnerable to climate change impacts, as well as facilitating mitigation and resilience for disasters; and (3) increasing FIO’s engagement on climate-related issues and leveraging the insurance sector’s ability to help achieve climate-related goals. Comments on 19 separate questions are requested by November 15, 2021.
1. Executive (EX) Committee and Plenary Adopt SSAP No. 71 Amendments Over Objections
The Executive Committee (EX) and Plenary adopted amendments to Statement on Statutory Accounting Principles (SSAP) Number 71 – Policy Acquisition Costs and Commissions pertaining to levelized commissions that are paid to a third party and then distributed to agents as non-levelized commissions. The amendments clarify SSAP No. 71 to ensure that insurers recognize and report such commissions as loans during the first year of the contract. Specifically, the amendments provide that, beginning December 21, 2021, insurers cannot recharacterize or delay recognition of liabilities to third parties for initial sales commissions owed.
Multiple states – including Arkansas, Georgia, Idaho, Louisiana, Mississippi, Montana, New Mexico, and Oklahoma – as well as American Samoa voted to oppose the amendments on the basis that the small number of insurers engaging in the practice would need additional time to comply with the revised guidance. The majority of commissioners voted in favor of the December 31, 2021, effective date, however, with many noting that affected insurers could apply for a permitted accounting practice in their domiciliary state(s). A number of commissioners who voted in favor of the amendments noted that it was not the NAIC’s prerogative to override a domestic state’s authority by delaying the amendments’ effective date, an action that acting Texas Commissioner Doug Slape suggested could amount to the NAIC effectively preempting domiciliary states’ authority by approving of a de facto permitted accounting practice. The amendments take effect on December 31, 2021.
2. Financial Condition (E) Committee Defines “Substantive” and “Non-Substantive” after SSAP No. 71 Debate
The
Financial Condition (E) Committee met on August 14 and adopted a referral to the
Statutory Accounting Principles (E) Working Group regarding Statutory Accounting Principles (SAP)
Terminology of “Substantive” and “Non-Substantive,” which arose in response to the discussion of
SSAP No. 71 – Policy Acquisition Costs and Commissions. Though the Committee noted that it understands the terms, crafted as part of the SAP codification, to be simple differentiators between proposed revisions that reflect new SAP concepts (i.e., substantive) or clarifications of existing SAP concepts (i.e., non-substantive), interested parties, based on the common usage of the terms, were confused by their use and perceived them to reflect the degree of financial impact on companies.
3. Financial Stability (E) Task Force Adopts Liquidity Stress Test Framework
The
Financial Stability (E) Task Force met on July 27 in lieu of the Summer National Meeting. The Vice Chair of the Task Force, Superintendent Eric Cioppa (ME), reported that the final version of the 2020
Liquidity Stress Test (LST) Framework was adopted on May 12, 2021, and the LST Study Group continues to issue Lead State guidance as needed for the 23 in-scope insurers performing the 2020 LST. Although the 2020 LST Framework document has been finalized, other areas of the NAIC
Macroprudential Initiative (MPI), such as the review of gaps related to counterparty disclosures and capital stress testing, still need to be addressed as the macroprudential surveillance system continues to be expanded and enhanced. To ensure appropriate support for this work, the Task Force proposed repurposing the
Liquidity Assessment (E) Subgroup into an ongoing group with broader responsibilities, renaming it the
Macroprudential (E) Working Group and revising its 2021 charges. After a discussion of comments received about the proposal from the American Council of Life Insurers (ACLI), Travelers, and the National Association of Mutual Insurance Companies, it was unanimously adopted by the Task Force.
4. Group Capital Calculation (E) Working Group Exposes GCC Materials for Comment
The Group Capital Calculation (E) Working Group met on July 26 in lieu of the Summer National Meeting and exposed the following two documents:
• The
Proposed Memo to the Capital Adequacy (E) Task Force Regarding Group Capital Calculation Treatment Regarding Certain Subsidiaries concerns GCC treatment regarding certain subsidiaries. During the development of the GCC, an effort was made to have the GCC and RBC treat similar assets similarly. The Proposed Memo recommends that the Task Force consider (at some point in the future) whether a change should be made to RBC regarding the treatment of insurance company subsidiaries and financial entities within RBC. The Working Group considered a request by the ACLI to delete the following sentence from the proposed memo: “
Specifically, we request the Task Force consider whether it would be appropriate for RBC to adopt the following (or similar) guidance from the GCC.” The ACLI’s rationale was that the GCC factors are so new and untested that it is premature to suggest that the RBC factors be changed to align with them. The Working Group agreed with the ACLI and voted to delete the language from the memo. With that change, the Proposed Memo was exposed for 90 days with comments due by October 25.
5. Financial Regulation Standards and Accreditation (F) Committee Considers Waiving Public Exposure Period for GCC-Related Model Holding Company Act Amendments
On August 14, the Financial Regulation Standards and Accreditation (F) Committee voted to expose for a one-year comment period beginning January 1, 2022, “compromise” amendments to the Insurance Holding Company System Regulatory Act (#440) and Insurance Holding Company System Model Regulation (#450) that would allow states to exempt certain qualifying groups from the Group Capital Calculation filing requirements without having to make an initial filing. The compromise amendments serve to appease a number of states that were previously opposed to requiring certain insurers to make initial filings in order to be exempt from the requirement on a going-forward basis. Only Texas opposed the proposed amendments, as revised. The proposed amendments and associated exposure period will now be considered by the Executive (EX) Committee and Plenary for approval during the Fall National Meeting. If ultimately approved, the amendments would become effective on January 1, 2026.
6. SAPWG Continues Work on Proposed Bond Definition
On August 26, the Statutory Accounting Principles (E) Working Group (SAPWG) held a public hearing on a
proposed definition of a bond for purposes of determining what investments should be eligible for reporting on Schedule D-1: Long-Term Bonds of insurers’ statutory financial statements. The hearing followed nearly a year of work on this issue by a small group of regulators and industry. As currently proposed, a “bond” would be defined as a “security” representing a creditor relationship, whereby there is a fixed schedule for one or more future payments, and which qualifies as either an “issuer credit obligation” or an “asset backed security.” The bulk of comments during the SAPWG hearing focused on examples provided in the proposed bond definition of securities that do, and do not, constitute a “bond,” including “stapled investments,” collateralized fund obligation debt instruments, and the first-loss tranche of a collateralized loan obligation issuance.
See our Legal Alert for additional details.
1. International Insurance Relations (G) Committee Discusses IAIS Papers
The
International Insurance Relations (G) Committee reported on two International Association of Insurance Supervisors (IAIS) draft documents that were recently out for member consultation: (i) a draft
Issues Paper on Insurer Culture and (ii) a draft
Revised Application Paper on Supervisory Colleges. The
Issues Paper on Insurer Culture considers “the concept of insurer culture as a point of intersection for prudential and conduct risks, with examples to illustrate the broader role of culture in managing these risks [and] understanding the various elements that make up insurer culture [in order to help] supervisors identify and address prudential and conduct issues in a more timely and effective manner….” The Paper is scheduled to be published in fall 2021.
The Application Paper on Supervisory Colleges was initially published in October 2014 and is currently being updated to reflect subsequent developments of IAIS supervisory material, in particular revisions to Insurance Core Principle (ICP) 3 (Information Sharing and Confidentiality Requirements) and ICP 25 (Supervisory Cooperation and Coordination), and the adoption of ComFrame, which took place in November 2019. The latest iteration of the Application Paper describes the processes and practices related to the establishment and functioning of supervisory colleges for insurance groups with cross-border activities.
2. Additional International Regulatory Developments
On July 27, NAIC staff updated the
Financial Stability (E) Task Force on the completion of data calls and analysis by the IAIS working on the
Global Monitoring Exercise as part of the IAIS’ Holistic Framework on systemic risk that takes a broader approach to financial stability and macroprudential surveillance. NAIC staff also provided a report on work that has been done on the
Macroprudential Risk Assessment Document that was shared with the North American CRO Council to obtain some high-level feedback before it is turned over to the new
Macroprudential (E) Working Group. On August 30, the IAIS issued the final
Application Paper on Macroprudential Supervision, which provides additional guidance related to macroprudential supervision in ICP 24 and the IAIS’s Holistic Framework.
1. Life Insurance and Annuities (A) Committee Poised to Discontinue Work of Life Insurance Illustrations (A) Working Group
The Life Insurance and Annuities (A) Committee met on August 16 during the NAIC Summer National Meeting to consider the status of the Life Insurance Illustrations (A) Working Group (LIIWG). Richard Wicka (WI), Chair of the LIIWG, was asked to provide background on the status of the work done to achieve the LIIWG’s 2016 charge to explore how the required life insurance narrative summary and policy summary can be enhanced for consumer readability and understandability. Early in the process, the LIIWG agreed to work on a one-to-two-page consumer-oriented policy overview document, but progress was slow, and in 2019 it became clear that there was a great deal of disagreement among regulators, and between regulators and interested parties, about the timing for completion of the policy overview document. At the suggestion of the Financial Condition (E) Committee, the LIIWG developed two alternate sample policy overviews that were exposed in July 2021. Interested parties were asked to comment by August 11 on whether they support the continued development of a short policy overview document for the LIIWG to achieve its charge.
New Jersey Commissioner and A Committee Chair Marlene Caride solicited comments from Committee members on the future of the LIIWG. No regulator spoke in favor of continuing the LIIWG efforts (although New York submitted written comments recommending that its work continue). Superintendent Beth Dwyer (RI) noted that there is currently no consensus on the issue at the Working Group or any other level. As a result, Superintendent Dwyer suggested that LIIWG’s efforts be discontinued. Commissioner Mark Afable (WI) suggested that Richard Wicka prepare a final Chair’s Report summarizing the history of the LIIWG effort. Chair Caride agreed with the approach, noting that it would enable the Committee to decide how to proceed during the NAIC 2021 Winter National Meeting. This approach may indicate that the LIIWG and its charge will be retired at the end of 2021.
2. Financial Regulation Standards and Accreditation (F) Committee Adopts Revisions to XXX/AXXX Model Regulation
The Financial Regulation Standards and Accreditation (F) Committee adopted revisions to the Part A preamble of the Term and Universal Life Insurance Reserve Financing Model Regulation (#787), more commonly referred to as the XXX/AXXX Model Regulation, which will become an NAIC accreditation standard on September 1, 2022 (with enforcement beginning January 1, 2023). Model #787 establishes uniform national standards governing reserve financing arrangements pertaining to term life and universal life insurance policies with secondary guarantees. Model #787 also includes provisions to ensure that funds backing captive reinsurance transactions, which consist of primary security and other security, are held in the forms and amounts that are appropriate. Model development was prompted by concerns regarding the security held under these transactions; and an interim solution, outlined by the XXX/AXXX Captive Reinsurance Framework, was included in the accreditation program through the Part A Preamble.
1. Property and Casualty Insurance (C) Committee Postpones Adoption of Pet Insurance Model Law
On July 29, the
Pet Insurance (C) Working Group voted to adopt a proposed
Pet Insurance Model Act. Between the July 29 vote and the Summer National Meeting, however,
Property and Casualty Insurance (C) Committee members and NAIC Staff noticed the potential need to make additional substantive amendments to the Model Act that could not be addressed prior to the Summer National Meeting. Accordingly, the Committee voted to postpone the vote on the Model Act and sent it back to the Working Group for additional edits. Committee Chair and Kansas Commissioner Vicki Schmidt stressed that the outstanding issues would be resolved through interim meetings and that the Committee would take a vote on the Model prior to the Fall National Meeting in December. The Committee expects to present a final draft to the NAIC Executive Committee and Plenary during the Fall National Meeting for approval.
2. Surplus Lines (C) Working Group Seeks to Update Standard Form Trust Agreement
On July 7, the
Surplus Lines (C) Working Group voted to expose
proposed amendments to the NAIC
Standard Form Trust Agreement for Alien Excess or
Surplus Lines Insurers for 30 days, ending August 6, 2021. Industry stakeholders encouraged regulators to explore the use of surety bonds as a funding device for Surplus Lines trust funds. Clark Fitz Hugh (International Sureties) was asked to draft comments for consideration during a future meeting. The Working Group’s next meeting is scheduled to take place virtually on November 16, 2021.
3. Market Regulation and Consumer Affairs (D) Committee Adopts Digital Claims Elements for Home and Auto Blanks
The Market Regulation and Consumer Affairs (D) Committee adopted the digital claims data elements for the Private Passenger Auto and Homeowners MCAS blanks to identify digital claims, hybrid claims, and non-digital claims. Previous efforts resulted in revisions to the interrogatories that identify the specific role of vendors in the digital claims process and distinguish between “traditional” claims handling and “digital” claims handling procedures. Committee Chair and Nevada Commissioner Barbara Richardson noted that one option for the effective date of the digital claims elements would be the 2023 data year, meaning that digital claims data would not be reported until 2024.
4. Blanks (E) Working Group Defers Consideration of “Exposure Data” Annual Statement Supplement for Home and Auto Financial Statements
The
Blanks (E) Working Group deferred consideration of a
proposal to create an Annual Financial Statement supplement and Quarterly Financial Statement column to publicly report individual insurers’ “exposure data” for homeowners and private passenger automobile lines of business. After discussion, the Working Group voted to adopt certain modifications to the proposal and to re-expose the proposal for a 90-day public comment period ending on October 22. A copy of the proposal was sent to the
Casualty Actuarial and Statistical (C) Task Force for review, with additional referrals sent to the
Financial Analysis (E) Working Group and
Financial Analysis Solvency Tools (E) Working Group.
1. Executive (EX) and Plenary Adopts Process for Evaluating Qualified and Reciprocal Jurisdictions
Executive (EX) Committee and Plenary voted to adopt revisions to the
Process for Evaluating Qualified and Reciprocal Jurisdictions during the 2021 Summer National Meeting. In general, the amendments serve to add information on how regulators should evaluate reciprocal jurisdictions in light of the 2019 amendments to the
NAIC Credit for Reinsurance Model Law (#785) and
Credit for Reinsurance Model Regulation (#786) that, among other things, eliminate collateral requirements for certain reinsurers in reciprocal jurisdictions. The amendments also incorporated last-minute amendments from the
Reinsurance (E) Task Force to clarify that the NAIC and state insurance regulators will not take action against Qualified Jurisdictions that are also Reciprocal Jurisdictions without prior consultation of Treasury’s Federal Insurance Office.
2. Reinsurance (E) Task Force Considers Passporting Process for Certified and Reciprocal Jurisdiction, Provides State Credit for Reinsurance Adoption Update
The
Reinsurance (E) Task Force discussed comments received on the draft
ReFAWG Review Process for Passporting Certified and Reciprocal Jurisdiction Reinsurers including the potential of harmonizing the Certified Reinsurer and Reciprocal Jurisdiction Reinsurer application procedures to mitigate overlap between the two processes for certain reinsurers. The Task Force noted that the draft will be the subject of further discussion, and that it would not finalize the document until the Reinsurance Financial Analysis (E) Working Group (ReFAWG) completes its update of the ReFAWG internal Procedures Manual that is currently underway.
3. Accounting Practices and Procedures (E) Task Force Adopts Model Audit Rule Implementation Guide Revisions
The NAIC Accounting Practices and Procedures (E) Task Force adopted revisions to the NAIC Model Audit Rule Implementation Guide in order to collect additional information on external audit firms’ lead partners to allow regulatory review and verification of compliance with audit partner rotation and qualification requirements. The updated version of the Implementation Guide will be included in the 2022 publication of the NAIC Accounting Practices and Procedures Manual.
4. Executive (EX) Committee and Plenary Adds Receivership Language to Insurance Holding Company Models
The Executive (EX) Committee and Plenary unanimously adopted amendments to the Holding Company System Regulatory Act (#440) and the Insurance Holding Company System Model Regulation with Reporting Forms and Instructions (#450) concerning receivership-related agreements for affiliates whose sole purposes are to provide services exclusively to domestic insurers. Specifically, the amendments are intended to make explicit, rather than implicit, the regulatory authority that a commissioner should have relative to the continuation of essential services of an insurance company from an affiliate during a receivership.
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