The National Association of Insurance Commissioners (NAIC) held its 2020 Fall National Meeting virtually from December 3 to December 9, 2020. The meeting was originally scheduled to be held in Indianapolis, Indiana, but was changed to an all-virtual meeting due to the ongoing COVID-19 pandemic. Unlike in-person national meetings where most NAIC committees, working groups and task forces meet, the Fall National Meeting primarily featured the parent committees, with many of the other meetings occurring prior to the event.
The following are some highlights from the Fall National Meeting, and meetings from NAIC committees, working groups and task forces during the preceding weeks. Notable developments include:
- The Executive (EX) Committee & Plenary unanimously adopted the Group Capital Calculation (GCC) Template and Instructions along with implementing amendments to the Insurance Holding Company System Model Act (#440) & Insurance Holding Company System Model Regulation (#450).
- The NAIC Executive (EX) Committee voted unanimously to adopt amendments to the model Unfair Trade Practices Act (#880) pertaining to anti-rebating. The latest amendments provide greater flexibility for the use of certain value-added products or services in connection with the sale of insurance.
- The Property and Casualty Insurance (C) Committee adopted the Casualty Actuarial and Statistical (C) Task Force (CASTF) Regulatory Review of Predictive Models White Paper. The White Paper, which has been under consideration for some time, identifies best practices for the regulatory review of predictive models and analytics filed by insurers to justify rates.
We do not cover every meeting in this report; rather, we comment on select noteworthy developments and matters of interest to our clients.
A. Issues of General Interest
- NAIC Adopts Group Capital Calculation
- NAIC Adopts Amendments to Anti-Rebating Provisions of Model Unfair Trade Practices Act
- Updates from the Special (EX) Committee on Race and Insurance
- Updates from the Valuation of Securities (E) Task Force
B. International Regulatory Developments
- IAIS High-Level Principles
- Other International Updates
C. NAIC Focus on Technology and Privacy
- Property and Casualty Insurance Committee Adopts CASTF White Paper on Predictive Models
- Privacy Protection Working Group Focuses on Consumer Issues
D. Issues of particular interest to life insurers
- AG 49-A Goes Into Effect for IUL Illustrations Issued After December 14, 2020
- Decrease in Annuity Minimum Nonforfeiture Interest Rate Adopted
- Suitability in Annuity Transactions Model Regulation FAQ Being Developed
- Working Groups Consider Issues Related to Product Illustrations
E. Issues of Particular Interest to Property/Casualty Insurers
- Surplus Lines Task Force Adopts Request for Nonadmitted Insurance Model Act Amendments
- Surplus Lines Task Force to Consider Giving Greater Flexibility for Termination of IID Trust Agreements
- Real Property Lender-Placed Insurance Model Act Adopted by Property and Casualty Insurance (C) Committee
F. Briefly Noted
- Climate and Resiliency (EX) Task Force Considers Way Forward for Climate Risk Disclosure Survey and Task Force on Climate-Related Financial Disclosures Guidance
- Financial Condition (E) Committee Adopts Guideline for Administration of Large Deductible Policies in Receivership
- NAIC Consumer Liaison Committee Receives Presentation on Use of Criminal History Information
- NAIC Outlines Criteria for Supporting Federal Pandemic Risk Legislation Proposals at CIPR Event
- NAIC Officers Elected for 2021
A. Issues of General Interest
1. NAIC Adopts Group Capital Calculation
The Executive (EX) Committee & Plenary unanimously adopted the Group Capital Calculation (GCC) Template and Instructions along with amendments to the Insurance Holding Company System Model Act (#440) & Insurance Holding Company System Model Regulation (#450) that provide for submission of the GCC on a confidential basis.
The adoption of the GCC is the culmination of an intensive effort that began in 2015, with the creation of the Group Capital Calculation (E) Working Group. The objective of the GCC is to provide US insurance regulators with an additional analytical tool for conducting group-wide solvency supervision. The GCC will supplement existing solvency tools by giving regulators insight into the financial condition of non-insurance entities and how capital is distributed across affiliated or subsidiary entities to better determine whether the group poses a risk to the regulated insurance entity and its policyholders.
A small group consisting of several members of the Working Group and several interested parties is drafting analytics guidance. When finalized, the guidance is expected to become part of the NAIC Financial Analysis Handbook, which regulators will use in reviewing GCC submissions. Completion of the Handbook guidance is expected in early 2021.
2. NAIC Adopts Amendments to Anti-Rebating Provisions of Model Unfair Trade Practices Act
The NAIC Executive (EX) Committee voted unanimously to adopt amendments to the Model Unfair Trade Practices Act (#880) pertaining to anti-rebating, which has long been a priority of the Innovation and Technology (EX) Task Force and its chair, North Dakota Commissioner Jon Godfread. Prior to these amendments, the Model Act broadly prohibited insurers from directly or indirectly providing anything of value not specified in an insurance policy as an inducement to purchase the policy. The amendments come after years of advocacy from insurtech startups, among others, who argue that anti-rebating laws are outdated.
The amendments exempt from rebating restrictions value-added products or services that are offered or provided at no or reduced cost when those products or services are not specified in the policy and they:
- Relate to the insurance coverage;
- Are primarily designed to satisfy one of the following: (i) provide loss mitigation or loss control; (ii) reduce claim costs or claim settlement costs; (iii) provide education about liability risks or risk of loss to persons or property; (iv) monitor or assess risk, identify sources of risk, or develop strategies for eliminating or reducing risk; (v) enhance health; (vi) enhance financial wellness through items such as education or financial planning services; (vii) provide post-loss services; (viii) incent behavioral changes to improve the health or reduce the risk of death or disability of a customer (defined as policyholder, potential policyholder, certificate holder, potential certificate holder, insured, potential insured or applicant); or (ix) assist in the administration of the employee or retiree benefit insurance coverage;
- Are reasonable in comparison to that customer’s premiums or insurance coverage for the policy class; and
- Are based on documented objective evidence and offered in a manner that is not unfairly discriminatory.
The latest amendments also permit non-cash gifts or services, including meals and charitable donations on behalf of a customer, in connection with the marketing, sale, purchase, or retention of contracts of insurance as long as the cost of the gift or service is reasonable in comparison to the premium (and not included in any amounts charged to another person or entity), the offer is not made in a manner that is unfairly discriminatory and not conditioned on the purchase of insurance. It will now fall to the individual states to adopt the amendments.
3. Updates from the Special (EX) Committee on Race and Insurance
The Special (EX) Committee on Race and Insurance held a meeting on November 18, 2020. The discussion focused on the Committee’s third work stream – to examine and determine which current practices or barriers exist in the insurance sector that potentially disadvantage people of color and/or historically underrepresented groups. Interested parties provided insight and suggestions to the Committee during the call.
One of the main themes that emerged during the Committee’s call was the lack of boardroom diversity. Boardroom diversity was cited as a decisive factor in integrating diversity and inclusion into the values of companies and increasing representation in the industry. Another concern raised during the meeting was the lack of interest in the insurance industry more broadly from diverse communities. Some of the suggestions to address these issues included: (i) developing model guidelines on board recruitment and criteria; (ii) collecting and reporting boardroom and employee diversity statistics; (iii) developing a specific and expansive definition of diversity that includes board members, executives and employees; and (iv) creating opportunities to connect with college students through social media and apprenticeship and networking opportunities.
4. Updates from the Valuation of Securities (E) Task Force
The Valuation of Securities (E) Task Force met on November 18, 2020, prior to the National Meeting. During its meeting, the Task Force adopted a proposed amendment to the Purposes and Procedures Manual of the NAIC Investment Analysis Office (the “P&P Manual”) to update guidance on initial and subsequent annual filings, methodologies and documentation. The Task Force also received an updated proposed amendment to the P&P Manual on guidance for working capital finance investments and a proposed amendment to the P&P Manual to permit the Securities Valuation Office to rely on the unrated subsidiaries of a parent entity rated by a credit rating provider (CRP) for working capital finance investments. Both amendments were exposed for a 60-day public comment period ending on January 18, 2021.
In addition, the Task Force released for a 60-day comment period a proposed amendment to the P&P Manual to require the filing of supporting private rating analysis for any security assigned a private letter rating before it can receive an NAIC Designation. The proposal follows a May 2020 memorandum from NAIC Investment Analysis Office staff expressing concerns with bespoke securities and the NAIC’s “excessive reliance” on CRP ratings to assess investment risk and for regulatory purposes.
B. International Regulatory Developments
The International Insurance Relations (G) Committee received updates regarding actions taken by the International Association of Insurance Supervisors (IAIS), including actions related to the insurance capital standard (ICS), the Holistic Framework for Systemic Risk (Holistic Framework) and IAIS priorities for 2021.
1. IAIS High-Level Principles
The Committee spent much of its time hearing from interested stakeholders, including ACLI, APCIA and representatives from several insurance groups, regarding the IAIS High-Level Principles for developing criteria to assess whether the Aggregation Method (AM) provides comparable outcomes to the global ICS. For background, in November 2017, the IAIS set out an agreement on the implementation of ICS Version 2.0, including a unified path to convergence of group capital standards in furtherance of its ultimate goal of a single ICS that achieves comparable outcomes across jurisdictions. The agreement, reached in Abu Dhabi between IAIS leadership, the US members of the IAIS and non-US IAIS members, acknowledged the development by the United States of the AM to a group capital calculation. While the AM is not part of the ICS, the IAIS aims to be in a position by the end of the monitoring period to assess whether the AM provides comparable (i.e., substantially the same) outcomes to the ICS. If so, it will be considered an outcome-equivalent approach for implementation of ICS as a prescribed capital requirement (PCR). Stakeholders speaking before the Committee expressed concern that (i) the High-Level Principles’ definition of “comparable outcome” may not be consistent with the parameters outlined in Abu Dhabi, and (ii) the definition measures AM against the ICS which, by doing so, creates a bias in favor of ICS when no such bias should exist.
The High-Level Principles were released for public consultation on November 9, 2020; Submissions are due to the IAIS by January 22, 2021.
2. Other International Updates
The Committee also received an update on IAIS priorities for 2021 from IAIS Deputy Secretary General Romain Paserot. In addition to monitoring the ongoing COVID-19 pandemic, IAIS’s 2021 priorities include: finalization of certain key reforms (e.g., ICS and the Holistic Framework); peer exchange on emerging insurance trends (e.g., innovation and cyber risk); climate risk; and financial inclusion and sustainable development. In addition, the IAIS intends to release for public consultation: an application paper on supervision of control functions (expected in the first quarter of 2021); an application paper on macroprudential supervision (expected in the third quarter of 2021); an issues paper on insurer culture (expected in the third quarter of 2021); a draft document listing criteria for the comparability assessment (expected in the third quarter of 2021); and, phase 2 findings for the liquidity metrics (expected in the third quarter of 2021). In addition, and prior to the Fall National Meeting, the IAIS held a Town Hall where IAIS Executive Director Jonathan Dixon announced the IAIS Cyber Underwriting Small Group (CUSG) would soon issue a report on sustainable cyber underwriting.
C. NAIC Focus on Technology and Privacy
1. Privacy Protection Working Group Focuses on Consumer Issues
The Privacy Protections (D) Working Group continued its work to review and revise the Privacy of Consumer Financial and Health Information Regulation (#672) during a November 20, 2020 public call. The working group has segmented its review into three general areas: (i) consumer issues, (ii) business issues, and (iii) regulatory issues. The goal of the review is to identify any updates that should be made to Model #672, including potentially by pulling language and concepts from newer privacy regimes such as the California Consumer Privacy Act and the European General Data Protection Regulation.
Starting its work by focusing on consumer issues, Chair Cynthia Amman (MO) used the meeting for a general discussion to identify the specific consumer issues that could be revised or enhanced in Model #672. The Working Group has so far identified four general consumer issues to focus on: (i) consumer notifications, (ii) data portability, (iii) opt-ins/opt-outs to information sharing and (iv) disclosures. Chair Amman noted that the Working Group would like to understand how current requirements addressing these issues are working in practice, whether they can be streamlined or modernized and how technology can be used to better serve consumer interests.
As part of this initial discussion, Chair Amman noted that some regulators have been considering allowing required privacy notices to be posted online and for consumers to be referred to the online posting instead of requiring that the notice be sent (often in hardcopy) to the consumer directly. Regarding opt-in and opt-out requirements for information sharing, Chair Amman noted that she thinks these various rights are confusing to consumers and that the Working Group would welcome suggestions on how this issue could be dealt with differently. Finally, regarding current disclosure practices, several members of the Working Group expressed particular interest in the role of third parties in collecting, sharing, storing and selling consumer data and concern over whether consumers understand what is being done with their data.
As the next step in its review process, the Working Group is now holding weekly regulator-only meetings to develop draft revisions to Model #672 addressing consumer issues. The Working Group’s goal is to expose draft revisions for comment in early January 2021.
2. Property and Casualty Insurance Committee Adopts CASTF White Paper on Predictive Models
The Property and Casualty Insurance (C) Committee adopted the Casualty Actuarial and Statistical (C) Task Force (CASTF) Regulatory Review of Predictive Models White Paper. The White Paper, which has been under consideration for some time, identifies best practices for the regulatory review of predictive models and analytics filed by insurers to justify rates. It is not intended to be adopted as law or regulation. In drafting the White Paper, CASTF identified four general best practices:
- Ensure that the selected rating factors, based on the model or other analysis, produce rates that are not excessive, inadequate or unfairly discriminatory;
- Obtain a clear understanding of the data used to build and validate the model, and thoroughly review all aspects of the model, including assumptions, adjustments, variables, sub-models used as input and resulting output;
- Evaluate how the model interacts with and improves the rating plan; and
- Enable competition and innovation to promote the growth, financial stability and efficiency of the insurance marketplace.
The White Paper includes proposed changes to the NAIC’s Product Filing Review Handbook, as well as proposed statutory guidance. Of particular note, the White Paper includes a lengthy list of information elements that regulators should consider obtaining from insurers to support model review, as well as commentary on when and why those information elements may be useful to regulators. The White Paper does not address certain prominent issues like the identification of disparate impact and proxies, causality versus correlation and confidentiality: the CASTF indicated that other committees are better positioned to address some of these issues and that there is already model guidance that addresses the other concerns raised.
While the CASTF removed from the White Paper all references to a “causal” relationship, it still specifies that regulators may require insurers to provide a “rational explanation” as to why a factor is actuarially correlated to risk. In response, Commissioner James Donelon (Louisiana), Vice Chair of CASTF, noted that the “rational explanation” requirement instructs state insurance regulators to deny filings not “readily understandable to a consumer” and should be used to “explain an approved rating treatment” if challenged by a consumer, legislator or the media. Commissioner Donelon recommended that the Committee amend the White Paper definition of “rational explanation” and make other conforming changes. A number of Task Force members, including Nevada’s Gennady Stolyarov, expressed that Commissioner Donelon’s proposed amendments make certain presumptions and posit a more nebulous reference to a connection in favor of insurers, among other concerns. These feelings were echoed by George Bradner of Connecticut. After considerable discussion (concerning the substance of the amendments and a lengthy discussion on how to properly vote on Commissioner Donelon’s proposed amendments), the amendments failed by a vote of three in favor and nine against.
D. Issues of Particular Interest to Life Insurers
1. AG 49-A Goes Into Effect for IUL Illustrations Issued After December 14, 2020
On November 10, 2020, the NAIC Life Insurance and Annuities (A) Committee adopted revisions to Actuarial Guideline 49 —The Application of the Life Illustrations Model Regulation to Policies With Index-Based Interest (AG 49), with an effective date of December 14, 2020, as well as technical changes to AG 49-A to coordinate its effective date with the anticipated adoption of proposed revisions to AG 49. Both motions passed with only New York voting against them.
On Wednesday, December 9, 2020, the NAIC Executive (EX) Committee and Plenary adopted the revisions to sunset AG 49 for new issues in order to coordinate the effective date of AG 49 with the effective date of AG 49-A, adopted by the NAIC at the 2020 Summer National Meeting. As revised, AG 49 applies to policies issued before December 14, 2020 and AG 49-A will apply to policies issued after that date. Companies may choose to follow AG 49-A for policies issued before December 14, 2020. My Chi To, New York Department of Financial Services (DFS) Executive Deputy Superintendent for Insurance, voted against the motion to adopt the revisions on consumer protection grounds. She stated that IUL illustrations are supposed to show consumers how a given product works and how it is expected to perform going forward. As a practical matter, she said, insurers have used these illustrations to compete with each other in selling these specific products by showing what New York believes are unrealistic growth of cash values. She noted that New York also opposed these revisions at the Life Committee level. New Mexico shared New York’s concern and voted against adoption.
2. Decrease in Annuity Minimum Nonforfeiture Interest Rate Adopted
The Executive (EX) Committee and Plenary adopted a new minimum nonforfeiture interest rate floor of .15%, reduced from 1.0%, for individual fixed and fixed indexed annuities via an amendment to the NAIC Model Standard Nonforfeiture Law for Individual Deferred Annuities (#805). New York, Washington, New Mexico, Nevada and the Virgin Islands voted against the amendment. My Chi To, DFS Executive Deputy Superintendent for Insurance, stated that New York was voting against the amendment on consumer protection grounds. She said New York feels that in light of high potential surrender penalties for these products, consumers should have a meaningful guarantee of interest rates.
The Interstate Insurance Product Regulation Commission’s Uniform Standards for deferred annuity contracts refer to compliance with Model #805. The change to .15% nonforfeiture interest rate would normally become effective for filings submitted to the Compact on or after the date the NAIC adopts an amendment to the model law without regard to adoption of the model amendment by individual Compact member states. However, because of the recent Colorado Supreme Court opinion in Amica Life Insurance Company v. Wertz (Wertz), which held that a conflict between state law and Compact Uniform Standards is not a proper delegation of authority where the state statute would provide a more beneficial outcome, the Commission considered this an issue. The Commission officers and staff expressed that the best way to proceed would be to put a temporary pause on the effectiveness of the reduction in the minimum nonforfeiture interest rate by adopting an emergency rule to stay the effectiveness of the amendment to Model #805. This would give the Commission’s Product Standards Committee time to study and recommend when and how to incorporate the amendment into the applicable Uniform Standards. On December 4, 2020, during a Joint Meeting of the Insurance Compact Management Committee and the Commission, the emergency rule was unanimously adopted and is effective until April 4, 2021, which will allow the commissioners and the state legislatures’ time to consider this change.
It is not clear what action the Commission will take after April 4, 2021, when the 120-day stay provided under the emergency rule expires. To assist them in determining how to proceed, the Commission engaged former Ohio Commissioner Mary Jo Hudson to conduct an independent governance review to, among other things, address the legislative delegation issues raised by the Wertz opinion.
3. Suitability in Annuity Transactions Model Regulation FAQ Being Developed
The Annuity Suitability (A) Working Group has not met since the Summer National Meeting. Iowa Commissioner Doug Ommen, co-chair of the Working Group, reported to the Life Insurance and Annuities (A) Committee that a frequently asked question (FAQ) document was exposed on September 4, 2020, for comment until October 2, 2020. The purpose of the FAQ is to provide consistent guidance intended to promote greater uniformity across states as they move forward with adopting the best interest revisions in the Suitability in Annuities Transaction Model Regulation (#275) and implementing its provisions. Comments received on the FAQ were discussed by the Working Group on December 14, 2020. To date, annuity best interest standards have been adopted in Arizona, Iowa and Rhode Island with proposals pending in many other states.
4. Working Groups Consider Issues Related to Product Illustrations
The Life Insurance and Annuities (A) Committee granted extensions to two working groups addressing product illustration issues. The first, the Annuity Disclosure Working Group, has been working for the past three years to finalize revisions to the Annuity Disclosure Model Regulation (#245) addressing illustrations of indices that have been in existence for fewer than 15 years. Regulators are concerned that consumers are being misled by unrealistic indexed annuity illustrations. Working Group Chair, Mike Yanacheak (Iowa), said the Working Group needs to decide if it wants to make a recommendation to the Committee related to product approval standards for proprietary indices and also needs to determine whether standards surrounding the relationship between the hedging provider and the index provider are needed. Comments by Mr. Yanacheak at an industry conference on November 5, 2020, indicated that no further progress has been made on finalizing the revisions to Model #245.
Second, the Life Insurance Illustration (A) Working Group was granted an extension to continue its work to develop policy summary disclosures across various life insurance products. The Working Group is working on policy summary disclosure documents to be delivered with the Life Insurance Buyer’s Guide. Working Group Chair, Richard Wicka (Wisconsin), said that decisions remain to be made on the timing of delivery.
E. Issues of Particular Interest to Property/Casualty Insurers
1. Surplus Lines Task Force Adopts Request for Nonadmitted Insurance Model Act Amendments
The Surplus Lines (C) Task Force is considering updates to the Nonadmitted Insurance Model Act (#870) to implement the provisions of the federal Nonadmitted and Reinsurance Reform Act of 2010 (NRRA). The Model Act provides rules governing state insurance company licensing requirements, including activity that constitutes “transaction of insurance” requiring licensing, and rules governing the placement and taxation of nonadmitted insurance, including surplus lines placements, independently procured insurance and other licensing exemptions. Enacted in 2010, the NRRA made significant changes to the regulation of nonadmitted insurance in the United States – most notably, streamlining eligibility requirements for surplus lines insurers and granting the “home state” exclusive authority to regulate and tax nonadmitted insurance transactions. Despite these changes, the NAIC has not yet amended the Model Act to align with the NRRA (in part, because, following the NRRA’s enactment, regulators were uncertain if states would implement a nationwide system for reporting and allocating nonadmitted insurance premium taxes (they have not)). Instead, in 2011, the NAIC issued the Nonadmitted Insurance Reform Sample Bulletin, which summarized the scope of and changes provided under the NRRA, but does not have the force of law.
Following on discussions from the Summer National Meeting, the Task Force formed the Model #870 Drafting Group to study Model #870 and determine if it requires modernization. The Drafting Group met September 30 and October 27, 2020, to document potential amendments to Model #870. Those potential amendments include: (i) adding, removing or updating certain definitions to be consistent with the NRRA; (ii) integrating domestic surplus lines insurers language into the Model; (iii) incorporating accident and health coverage into the Model (where applicable); (iv) addressing direct procurement and related tax considerations; (v) incorporating language on exempt commercial purchasers; (vi) addressing eligibility criteria; (vii) addressing diligent search requirements; (viii) adding “home state” provisions and related tax considerations; (ix) enhancing language for surplus line broker licensing; and (x) improving language for state surplus lines advisory/stamping organizations.
Following the report from the Drafting Group, Gennady Stolyarov (Nevada) suggested that it would be preferable to separate the model law amendment process into two rounds: one to harmonize Model #870 with the NRRA and a second to make any additional changes deemed proper by the Task Force. This methodology, according to Mr. Stolyarov would prevent states that have already made their laws consistent with the NRRA from having to consider NRRA-related changes (round one), while still providing them with the option of implementing the other, non-NRRA, amendments (round two). Task Force Chair Commissioner James Donelon (Louisiana) expressed that he was open to the idea, but that he wants to push ahead on consideration of a number of amendments, including those that go beyond making Model #870 consistent with the NRRA.
Jamie Walker (Texas) commented that the Request for NAIC Model Law Development focused solely on the NRRA and that the Request itself should be amended if the Task Force wished to consider additional amendments. Commissioner Donelon agreed and directed NAIC staff to modify the form to include additional references to the other planned modernization amendments planned for the model.
2. Surplus Lines Task Force to Consider Giving Greater Flexibility for Termination of IID Trust Agreements
The Surplus Lines (C) Task Force received a report from Dan Schelp of the NAIC Legal Division recommending that the Task Force consider revisions to the current Standard Form NAIC Trust Agreement for Alien Excess or Surplus Lines Insurers (Standard Form Trust Agreement) to provide greater flexibility for the termination of a trust agreement in cases where there are no present or future liabilities to the trust. One of the provisions in the Standard Form Trust Agreement requires International Insurance Department (IID) listed insurer trust agreements to have an expiration date of no less than five years from the date the insurer notifies the trustee of its intention to terminate the trust fund. The IID recently came across a situation where an IID-listed insurer failed to provide the required five-year notice to terminate and, per the terms of the Standard Form Trust Agreement, the insurer could not be released despite the fact that (i) the last policy had expired in 2013, (ii) the insurer provided an actuarial opinion indicating that no reserves were required and (ii) the insurer had entered into a loss portfolio transfer contract and quota share reinsurance agreement that covers 100% of past and future liabilities.
Mr. Schelp suggested that the Task Force revisit the termination provision to update it to provide more flexibility, including: the use of an actuarial opinion or certified public accountant report showing no reserving requirements; the use of a 100% quota share reinsurance as opposed to the current trust requirement of an assumption and assignment agreement; and discretionary authority for the IID to provide recommendations to the trustee on termination. Mr. Schelp also suggested that, in addition to the considerations discussed above, the Task Force review other provisions of the Standard Form Trust Agreement, such as definitions, type of letters of credit, trustee’s fees and expenses and use of certified mail, all of which might be enhanced in order to become consistent with modern trends. A motion to refer the issue to the Surplus Lines (C) Working Group passed unanimously.
3. Real Property Lender-Placed Insurance Model Act adopted by Property and Casualty Insurance (C) Committee
The Lender-Placed Insurance Model Act (C) Working Group, chaired by Florida Commissioner and 2021 NAIC President, David Altmaier, provided a report of its work to the Property and Casualty Insurance (C) Committee and the process for creating a new model law focusing on lender-placed homeowners insurance. Commissioner Altmaier said the Working Group reviewed sections of the Real Property Lender-Placed Insurance Model Act during various meetings and asked for comments on an ongoing basis throughout 2017 and 2018. The draft Model Act – which is intended to create a legal framework within which lender-placed insurance on real property may be written, maintain the separation between lenders/servicers, and insurers/insurance producers, and minimize unfair competitive practices in the sale, placement, solicitation and negotiation of lender-placed insurance – was exposed in March 2018, discussed in September 2018 and exposed in October 2020 for a comment period ending November 3, 2020. The Committee adopted the Model Act, with California abstaining. The Model Act now goes to the NAIC Executive (EX) Committee for consideration and approval. The Executive Committee is expected to meet next during the 2021 Spring National Meeting in April.
F. Briefly Noted
1. Climate and Resiliency (EX) Task Force Considers Way Forward for Climate Risk Disclosure Survey and Task Force on Climate- Related Financial Disclosures guidance
The Climate and Resiliency (EX) Task Force listened to presentations from the American Academy of Actuaries and the NAIC’s own Center for Insurance Policy and Research (CIPR) analyzing findings from the NAIC Climate Risk Disclosure Survey and recommending that the survey include certain additional questions that can be answered with a simple “yes” or “no”. The Task Force also considered whether it is possible to combine the NAIC Disclosure Survey with the Task Force on Climate-Related Financial Disclosures (TCFD) Guidance. Six states (California, Connecticut, Minnesota, New Mexico, New York and Washington) currently administer the Disclosure Survey and, beginning in 2020, insurers were permitted to submit the TCFD in lieu of the Disclosure Survey. Commissioner Ricardo Lara (California) recommended that the Climate Risk Disclosure Workstream consider options with respect to consolidation or otherwise harmonizing the TCFD and the Disclosure Survey, including consideration of the gaps between the two and whether the TCFD is fit for purpose.
The subject of climate and resiliency continues to be a topic of discussion amongst insurance regulators including, in particular, the six states listed above. For example, on September 22, 2020, New York DFS issued Insurance Circular Letter No. 15 relating to the impact of climate change on insurers. Among other things, the Circular Letter outlines new climate-related expectations for New York-licensed insurers and DFS’s plans for facilitating the changes it expects insurers to make. For more information on Circular Letter 15, see our Legal Alert: New York Department of Financial Services sets Expectations for Insurers to Incorporate Climate Change Risk into Governance, ERM, and Business Strategies. More recently, DFS published FAQs about Insurance Circular Letter No. 15, which address insurer-specific questions about the applicability and scope of the Circular Letter, including DFS’s timeline with respect to the expectations set forth in the Circular Letter.
2. Financial Condition (E) Committee Adopts Guideline for Administration of Large Deductible Policies in Receivership
The Financial Condition (E) Committee adopted the Receivership and Insolvency (E) Task Force’s Guideline for Administration of Large Deductible Policies in Receivership. In 2018, the Task Force was given a charge to recommend possible enhancements to the US receivership regime with regard to the administration of large deductible policies in receivership. The charge was in response to issues highlighted in the 2016 Workers’ Compensation Large Deductible Study. The Guideline is structured so as to provide an alternative to the Insurer Receivership Model Act (#555) and model language proposed by the National Conference of Insurance Guaranty Funds.
3. NAIC Consumer Liaison Committee Receives Presentation on Use of Criminal History Information
The Consumer Liaison Committee received a presentation from Peter Kochenburger (University of Connecticut School of Law) on insurers’ use of consumers’ criminal history information. Special attention was given to whether data vendors provide for rating purposes records that are rendered obsolete (e.g., due to decriminalization), records based on charges that are ultimately dropped, instances where a state determines a person to be rehabilitated and instances where a record is expunged or sealed. Professor Kochenburger also asked regulators to consider whether criminal history should be used in rating at all given recent studies’ findings that the criminal justice system unfairly discriminates against certain groups of people.
4. NAIC Outlines Criteria for Supporting Federal Pandemic Risk Legislation Proposals at CIPR Event
The NAIC CIPR Fall Program, Pandemic Business Interruption Federal Insurance Mechanism – Learning From The Past, Thinking About the Future, featured summaries of prominent federal legislative proposals for prospective pandemic business interruption programs, including proposals by the APCIA, Chubb, Zurich, the Business Continuity Coalition and Congresswoman Carolyn Maloney (NY-12). Perhaps the most noteworthy item came from NAIC Managing Director of Government Relations, Ethan Sonnichsen, who expressed the NAIC’s view that a federal mechanism is necessary given the scale of the problem, and the need to protect insurer solvency. However, Mr. Sonnichsen cautioned that any federal program should not undermine state insurance regulatory authority, and that it should reduce exposure to future pandemics and incentivize take up for affordability and availability.
5. NAIC Officers Elected for 2021
The Executive (EX) Committee and Plenary elected officers for 2021 during the closing session of the Fall National Meeting. Florida Commissioner David Altmaier, Idaho Insurance Director Dean Cameron and Missouri Insurance Director Chlora Lindley-Myers each ran unopposed for their 2021 positions (President, President-Elect and Vice President, respectively). The newest officer, who ran a contested race for Secretary/Treasurer, is Connecticut Insurance Commissioner Andrew Mais, who was selected to be Connecticut’s next insurance commissioner by Government Lamont in March 2019. Prior to becoming Commissioner, Mr. Mais was a member of Deloitte’s Center for Financial Services and a Director at the New York State Insurance Department (now DFS). The newly elected officers will assume their duties on January 1, 2021.