NAIC Spring Meetings Focus on Benefits of State Regulation

Alyssa KeehanManager of Business and Legal AffairsPIA National Atlanta, GA - Members of the National Association of Insurance Commissioners (NAIC) met March 8-11, 2003,...
April 10, 2003

Commissioners Set 2003 Strategy, Plan Greater Involvement

By Ellen Sanders
Assistant Vice President, Regulatory Affairs
PIA National

Alyssa Keehan
Manager of Business and Legal Affairs
PIA National

Atlanta, GA - Members of the National Association of Insurance Commissioners (NAIC) met March 8-11, 2003, for their annual spring meetings, where the broad focus was on how state regulation of insurance continues to be the best option for the industry and consumers.

A host of committees and working groups, some established and some newly-formed, concentrated on the details of the issues making up the NAIC's current focus.

New NAIC President and Arkansas Insurance Commissioner Mike Pickens outlined his agenda for the coming year, much of which is crystallized in the new initiative ASSURE, the Alliance for Sound State Uniform Regulatory Efficiency.

"The nation's insurance commissioners are committed to streamlining and simplifying state insurance regulation while continuing to protect consumers," said Pickens in a statement. "This year offers an opportunity on the good work already done and -- by focusing on a few key areas -- to make a real difference for insurance providers, insurance regulators and ultimately, insurance consumers."

Here are some highlights from the NAIC Spring Meetings:

Privacy: Of what use are privacy notices to consumers if they can't understand them, and throw them into the trash in frustration? The Privacy Notice Subgroup of the Privacy Issues Working Group attempted to address this dilemma by adopting its "Report on Improving Privacy Notices" which details specific suggestions for making reports clearer and more consumer-friendly.

The dilemma: the Gramm-Leach-Bliley Act (GLBA) sets out specific standards for what must be included in these legal notices to consumers, but consumers complain they are written in "legalese." The Subgroup's suggestions are not mandatory or even "best practices." Rather, they are recommendations that insurance regulators want insurers to use as a guide for improving their current notices.

Producer Licensing Working Group: PIA together with carrier and producer groupshave advised the NAIC about the cumulative effects of so-called "minor" differences in state efforts at uniformity. Most states have adopted producer licensing reform legislation within the past couple of years, and most of the new laws are substantially similar to the NAIC's Producer Licensing Model Act.  But each law has its own differences, which are seemingly minor. But 56 "minor" differences thwart uniformity and complicate operations for those dealing in more than one state.

This coalition sent a letter to NAIC President Mike Pickens and other members of NAIC Leadership outlining the differences and making recommendations.

Partially in response to the issues raised in this letter, the Producer Licensing Working Group directed staff to conduct a survey of the states to determine each state's implementation and compliance with the producer licensing and appointments standards adopted in 2002. A report on the survey will be made at or prior to the NAIC meeting in June.

The working group began review of a draft Fingerprint Model law. PIA will submit comments during the 30-day comment period. The working group also recommended that Pennsylvania be certified as a reciprocal jurisdiction under the Gramm-Leach-Bliley Act (GLBA). This will make Pennsylvania the 39th jurisdiction to be so certified.

The Credit (Insurance) Scoring Working Group adopted two documents designed to help protect insurance consumers. An "Analysis of Regulatory Options" and a consumer brochure titled, "Understanding How Insurers Use Credit Scoring," were both developed by the NAIC's Credit Scoring Working Group.

This group discussed the possibility of an independent study to be conducted or coordinated by the NAIC on the hot-button issue of the impact of insurance scoring. The study, if it were to be undertaken, would focus on such issues as whether the insurer use of credit scores may have a "disparate impact" on certain minority and low-income groups.

Mike Kreidler, Washington State Insurance Commissioner and co-chair of the Credit Scoring Working Group, said that should the NAIC decide to lend its backing to a study, it should ascertain whether rating plans using credit history systematically produce different results for blacks, Hispanics and white non-Hispanics, and by age and income.

Insurers dispute the need for such an NAIC study. David Snyder, assistant general counsel for the Washington, D.C.-based American Insurance Association, told the National Underwriter that even if the use of credit scoring inadvertently affects one ethnic or income group more than another, "that would be irrelevant. It would not violate legal standards."

Without coming to any conclusion, the working group discussed options for NAIC to contract for a study which would be paid for by industry. No one from industry has yet volunteered to pay for such a study, particularly as industry feels that sufficient studies have been done, including an independent study just released by the University of Texas.

The new Government Affairs Task Force held its inaugural meeting. The task force will develop, coordinate, and implement the NAIC's legislative, regulatory, and grassroots initiatives. They will also devise strategies to promote NAIC participation for all its members in an aggressive NAIC government relations program. NAIC Immediate Past President and Iowa Insurance Commissioner Terri Vaughan will chair the task force. "This group will help us coordinate and manage our resources. We will not remain passive and allow others to determine the future of state regulation."

The fact that this new task force spent most of its first meeting in executive session drew fire from the National Association of Mutual Insurance Companies (NAMIC). NAMIC Market Regulation Manager Dave Reddick said the group "will be overlooking an important stakeholder - those in the industry who support state regulation - if they exclude us entirely from their deliberations." Vaughan said many Task Force meetings might be held in executive session because the deliberations would be of a strategic nature.

Association Health Plans: The NAIC reiterated its long-standing opposition to Senate Bill 545, which would allow for the implementation of association health plans (AHPs). Voicing strong concern that AHPs will operate beyond the jurisdiction of state regulation to the detriment of consumers, NAIC President and Arkansas Insurance Commissioner Mike Pickens recently signed and submitted on behalf of the full membership of the NAIC letters to key members of Congress, comprehensively stating the organizations opposition to the bill.

Specifically, the NAIC contends S. 545 would: (1) permit risk selection thereby creating opportunities for "cherry-picking" among healthier groups; (2) allow inadequate capital standards and solvency requirements both of which are inferior to existing state standards; (3) eliminate proven state consumer protection laws, including those designed to allow consumer appeals of adverse plan decisions and those aimed at preventing and fighting fraud; and (4) allow AHPs to ignore state benefit requirements.

The Antifraud Task Force began discussion of the elements that should be included in a premium pass through account model bill. PIA will continue to work with the task force chair and staff to craft model language. PIA's Regulatory Affairs and Business Issues Committees have begun consideration of options.

The Market Conditions Working Group appointed a Homeowners Subgroup to study the current condition of the homeowners market.

Public Hearings: The NAIC held two public hearings during the meetings in Atlanta. The first concerned medical malpractice insurance, with speakers including a physician, an insurer and a trial attorney. The second hearing was on arbitration clauses in insurance policies. Many from the industry who were scheduled to testify at the arbitration hearing were unable to attend after the NAIC switched the hearing date at the last minute. Thus, NAIC President Pickens has promised industry that a second round of hearings will be scheduled for the NAIC Summer Meeting in June.

Other actions: Several working groups have discussed implementation of the Terrorism Risk Insurance Act and the U.S. Patriot Act. Industry reported that implementation is generally proceeding well.

Asbestos litigation and legislation also received much coverage in various working groups. The Market Conditions Committee will be looking more closely at this issue during the months ahead.

A working group on interstate compact national standards was created to develop product standards for life insurance, annuity, disability income and long-term care insurance products.

A new working group will focus on determining the impact, or potential impact, of class action litigation on the authority of state insurance regulators.

This article originally appeared in the April 2003 PIA Connection.

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