NAIC Summer 2019 National Meeting Summary
The National Association of Insurance Commissioners (NAIC) held its summer meeting in New York from August 3-6, 2019, where insurance professionals and regulators gathered to hold committee meetings, discuss emerging technologies, and review key federal and state laws. Courtesy summaries provided by Jeffrey M. Klein, Of Counsel with McIntyre & Lemon, PLLC, Alex Gonzales, SLTX General Counsel, and Norma Essary, SLTX, in attendance of such open sessions.
Surplus Lines Task Force
- The Surplus Lines Task Force will add a new item to its 2020 charges, concerning the development or amendment of model laws, regulations, or guidelines. NAIC staffer Andy Daleo indicated that there was no specific project in mind, although the Nonadmitted Insurance Model Act (Model Law #870) has not been updated since 2004. Recent discussions regarding accident and health (A&H) policies being written in the surplus lines market, as well as the expansion of surplus lines license requirements to include A&H in addition to property and casualty, are examples of why Model Law #870 should be examined.
- A new section that insurers complete as part of their annual financial statements (Part 3 to Schedule T) was proposed that includes information on surplus lines premium taxes paid by state. Several states have made inquiries about the need to reconcile payments of surplus lines taxes by insurers vs. brokers. In response, the task force has proposed the new form to capture surplus lines premium taxes paid by the insurer on a home state basis. If passed, this form will take effect for the 2020 annual financial statement. The Wholesale and Specialty Insurance Association (WSIA) and American Property Casualty Insurance Association (APCIA) both requested a 60-day period to review the proposed form. They questioned why this data would be captured on a form that otherwise revolves around solvency. Additionally, there are substantial industry concerns both that insurers do not have the information available and that NAIC’s intent is not clear. The proposed new section can be found on the NAIC website.
- The task force discussed various technical amendments to the International Insurers Department (IID) Plan of Operation, which governs alien insurers.
- A report on flood information data collection was presented, and a new form will be exposed for thirty days. In prior conference calls, the Surplus Lines Task Force discussed obtaining greater information on flood coverages being written by alien insurers. Following adoption of the form for use in calendar year 2019, a representative of the Center for Economic Justice inquired as to whether there were changes for 2020. NAIC staff indicated that for 2020, a separate residential portion of the form will be included to capture information on first dollar vs. excess coverages, and to capture the number of policies in force at the beginning and end of the year. There is still time to develop the 2020 form, as it will not capture data until around June 2021 for the 2020 calendar year.
- A referral to the Producer Licensing Task Force concerning expansion of the underlying licensing requirement to A&H (as mentioned above) was adopted. An amendment to the Uniform Licensing Standards for Surplus Lines and an amendment to the Producer Licensing Handbook will be drafted if and when this is adopted.
- NAIC staffer Andy Daleo reported the following on the 2018 surplus lines market:
- 151 insurers were listed on the Quarterly Listing of Alien Insurers on December 31, 2018.
- Alien insurers wrote $15.3 billion in direct written premiums, up 12.4% over 2017.
- Foreign insurers wrote $34.7 billion in direct written premiums, up 10.3% over 2017.
- Alien insurers accounted for 31% of the total US exposure.
- There were $6.3 billion in US trust accounts to secure alien obligations.
- 2018 was the third year that cyber exposure data was collected.
- 72 alien insurers write cyber coverage, which is unchanged over 2017.
- Cyber coverages have increased 53% over 2017.
- 21 states now have laws enabling domestic surplus lines insurers (DSLI).
- There are 76 DSLIs, which wrote $352 million in direct written premiums.
Property & Casualty Committee
- The following task force reports were adopted:
- Casualty Actuarial Task Force – White paper published regarding predictive modeling
- Surplus Lines Task Force – Discussed the issuance of a flood insurance supplement, changes to the IID Plan of Operation, and a recent federal rule (effective July 1) allowing lenders to rely on private flood coverage
- Title Insurance Task Force – CertifID gave presentation on wire fraud
- Workers’ Compensation Task Force – Discussed joint effort by the NAIC and the International Association of Industrial Accident Boards and Commissions (IAIABC) to study changing relationships in the workforce, mobile applications for workers’ compensation, the use of AI, and the creation of digital certificates of insurance, with a final report due in 30 days
- Cannabis Insurance Working Group – Cannabis groups will submit a white paper to the committee within 30 days and for later submission to the Executive Committee concerning regulatory guidance regarding cannabis
- Catastrophe Insurance Working Group – Drafting group created to develop a white paper for consideration of the development of viable private flood markets beyond Florida; discussed state disaster response plan draft
- Climate Risk and Resilience Working Group – Discussed coverage issues arising out of California wildfires and heard a presentation by HSBC Securities on how the securities industry is examining risk vs. return
- Lender-Placed Insurance Model Act Working Group – Requested extension to review changes to the realty model act
- Pet Insurance Working Group – Possibly developing a model law; will collect complaint data through the Market Conduct Annual Statement
- Terrorism Insurance Implementation Working Group – Reported on updates regarding federal legislation, such as the Terrorism Risk Insurance Act (TRIA) that expires on December 31, 2020
- Transparency and Readability of Consumer Information Working Group – Completed work on a post-disaster claims guide
- The Cannabis Insurance Working Group discussed substantial gaps in coverage for the industry. It also discussed the federal Safe Banking Act applicable to financial institutions and pending before the US House of Representatives.
- A referral from the Catastrophe Insurance Working Group to the Transparency and Readability of Consumer Information Working Group was adopted regarding a claims guide for departments of insurance to use and provide to consumers after a disaster. This guide will include what information should be gathered, how to report a claim, which items a consumer would need to show proof, information on the claims settlement process, recovery, and more. This guide was adopted and will be put into an electronic format for consumers.
- A new flood coverage supplement was adopted for policies issued in the US by alien insurers (residential and commercial), which includes loss ratio data and data on both in-force policies and the number of claims. This supplement will be in effect for year-end 2019, with two new elements added in 2020.
- An extension for revisions to the Real Property Lender-Placed Insurance Model Act was granted until December 2019.
- A presentation was given on underinsurance in the homeowners market. Suggested solutions include public education, adequate disclosures, mandated minimum coverage, deductible buybacks, and financial assistance for those who cannot afford insurance. This issue was referred to the Transparency and Readability of Consumer Information Working Group to review disclosures from an educational standpoint.
Innovation & Technology Task Force
- Reports from the Big Data Working Group and the Speed to Market Working Group were accepted and approved.
- An Innovation and Technology State Contracts meeting held on August 2, 2019, was discussed, which included regulatory sandboxes and attempts to define terms so that all attendants would be on the same page.
- Commissioner Jon Godfread of North Dakota presented draft guidelines for addressing anti-rebating issues in his state. He mentioned the relevancy of the Unfair Trade Practices Act (Model Act #880) and the need to review and possibly update it. The task force decided to proceed with development of the model law.
- Director Raymond G. Farmer of South Carolina presented a report on 8 states that have adopted the NAIC Insurance Data Security Model Law (Model Law #668): Alabama, Connecticut, Delaware, Michigan, Mississippi, New Hampshire, Ohio, and South Carolina.
- NAIC staff member Ethan Sonneschein provided a report on the following pending federal matters:
- Senate Commerce Committee – Circulated a draft bill that the NAIC commented on
- Senate Banking Committee – Held a hearing on oversight of third-party data brokers (that insurers rely on)
- Many bills have been introduced that increase transparency and disclosure and allow consumers to review their own data. There is support for simplifying descriptions of privacy practices, so the subject matter will be easier to understand by consumers, and some have called for the Federal Trade Commission (FTC) to take on a more active role. The NAIC has had dialogue with federal agencies and Capitol Hill staff. It is concerned about proposals that effect broad preemption and their effect on the Gramm–Leach–Bliley Act and state privacy laws
- A report on 33 state enactments or proposals pending in 24 states was presented. Five states, including Texas, have legislation regarding privacy data pending.
- California-based startup Theta Lake gave a presentation on how it uses artificial intelligence (AI) to highlight reporting and compliance risks, such as risk in voice tools, documents, etc. For example, AI is capable of scanning all materials and seeing if a suitability discussion took place. The task force discussed and created a new AI Working Group, which will develop a report by summer 2020.