Credit-based insurance scoring, speed to market, and market conduct are areas of opportunity at the upcoming meeting of the National Association of Insurance Commissioners (NAIC) for regulators to act on their commitment to a modernized insurance regulatory system, according to the American Insurance Association (AIA). The meeting begins this weekend in Philadelphia.
“It has been two years since the regulators adopted their ‘statement of intent’ to work toward modernization of the insurance regulatory environment. Most important to us in this regard are improvements in the areas of speed to market and market conduct,” David Snyder, AIA assistant general counsel, remarked. “And, now with increased attention to credit-based insurance scoring, the regulators can further prove their commitment to modernization with a reasonable approach to this emerging issue.”
Credit-based Insurance Scoring
The Credit Scoring Working Group will continue studying regulatory activity in the states and discussing regulatory principles for insurer use of credit in rating and underwriting. “This is an opportunity for regulators to avoid another layer of regulation and let a competitive marketplace be the regulator,” Snyder said. “Most states, if they regulate this practice at all, have reasonable and balanced regulations. Credit information is an accurate predictor of future risk exposure, and there are pro-competitive and consumer benefits to using that information. We will continue to fight unreasonable regulations-such as those adopted in Maryland-that hinder its legitimate use.” Prior to the meeting, AIA will submit comments to the Working Group on its draft statement of consumer rights and on its draft credit scoring issues and best practices matrix.
Speed to Market
AIA, working together with the other property and casualty insurance trades, will propose priority issues to the Improvements to State-Based System subgroup (IS3) of the Speed to Market Working Group. Those priorities include: development of a functional self-certification system for rate and form filing that replaces existing governmental review, implementation of the short-form legislative model for commercial lines rates and policy forms that was adopted by the NAIC in the spring, and finalization of a report on personal lines regulatory modernization.
“We support the IS3 efforts to move states away from a dysfunctional command-and-control regulatory structure for rates and forms and toward a regulatory system that relies on market competition,” Stef Zielezienski, AIA assistant general counsel, commented. “Free-market pricing gives consumers the lowest prices and the widest choices, and permits state insurance regulators to focus their valuable resources on market conduct and financial solvency. The priorities that we have set will advance our speed-to-market efforts in this regard.
“The way in which self-certification is advanced by this subgroup and implemented in the states will determine the extent to which speed-to-market goals are achieved,” Zielezienski continued. “Replacing government review with self-certification will allow rates and forms to get to market more quickly, and regulatory review of certified filings would be accomplished during the market conduct process.” AIA’s self-certification comments to the NAIC Review Standards Checklists Working Group are attached.
At the spring meeting, the NAIC adopted the short-form legislative model for commercial lines rates and policy forms that blended commercial lines regulatory framework recommendations (adopted a year ago) with an earlier NAIC proposal. “We are working in the states to get this model implemented, and we must have the support of individual regulators in order to maximize our success,” Mark Skinner, AIA vice president, state programs, said.
“In 2002, additional states have made strides towards commercial lines regulatory modernization. Those states include Louisiana, Missouri, New Mexico, South Carolina and Virginia. Five other states are actively considering substantive reforms as well.
“More than 20 states have considered speed-to-market reforms this year. We anticipate legislative efforts will continue to build as a number of regulators have indicated a strong willingness to pursue meaningful regulatory modernization reforms in 2003. However, it will take a strongly coordinated effort to achieve meaningful reform in a uniform manner across the country. AIA is committed to working with state regulators to advance speed-to-market reforms in the states,” Skinner added.
The Market Regulation and Consumer Affairs Committee will review the draft outline of “A Guide to Market Analysis,” proposed jointly by industry groups. “We are urging the regulators to use existing data that will help them more efficiently and effectively identify companies for further market conduct review,” Laura Kersey, AIA counsel, remarked.
The Committee will also review comments on standard data call lists and interstate collaboration for market conduct examinations. Industry comments on both items are attached. “AIA is fully supportive of the NAIC’s efforts to improve the market conduct examination process,” Kersey continued. “Regulators can leverage examinations conducted by other states, in many cases, rather than conducting duplicative examinations on the same company. In addition, we need to continue working toward consistent market conduct examination data call formats in order to achieve efficient examinations.”
The NAIC’s Privacy Working Group may seek to amend its model privacy regulation, which was unanimously adopted by the NAIC nearly two years ago.
“This constantly shifting regulatory environment is bad for insurers and consumers,” Zielezienski commented. “The NAIC has made recent attempts to interpret the model regulation differently than its plain meaning and, when that process failed, to change the actual language to fit a regulatory intent unsupported by the model. Insurers are frustrated by what they perceive as the changing rules of the game, and we urge the NAIC to leave the model as is.”
Bruce Wood, AIA assistant general counsel, was set to speak to the Workers’ Compensation Task Force about the workers’ compensation implications of medical privacy regulations promulgated by the Department of Health and Human Services (HHS) pursuant to the Health Insurance Portability and Accountability Act. HHS is reviewing changes to the regulations and plans to issue final rules by late summer. Compliance with the rules is required by April 14, 2003.
“The conceptual flaw with the rules is the ambiguity in how workers’ compensation insurers and employers obtain medical information from ‘covered entities,’ such as treating physicians and hospitals,” Wood remarked. “Without elimination of disclosure impediments, such as application of the ‘minimum necessary’ standard, we fear significant dispute, litigation and potentially a shutdown in workers’ compensation systems, as occurred in Hawaii a few years ago with enactment of a now-repealed medical privacy law.”
“Although the hour is late, we urge regulators to weigh in with senior Department officials on this issue. HHS’s rules effectively turn treating physicians into workers’ compensation lawyers, saddled with the responsibility to make determinations of information relevance that are implicitly legal, not medical, judgments. Regulators should be very concerned about the implications of these rules for the efficient operation of the workers’ compensation system and the ultimate effect on system costs,” Wood concluded.
With the federal government moving closer to enacting a backstop for terrorism insurance coverage, the NAIC will have to resolve issues surrounding commercial lines’ terrorism exclusions. Since Sept. 11, regulators have granted the exclusions in most states, shifting financial responsibility for future terrorism attacks to policyholders. “The NAIC has shown tremendous leadership in response to the September 11 terrorist attacks by pushing for the federal backstop and simultaneously approving the necessary exclusions to protect the solvency of insurers,” Paul Blume, AIA vice president, said. “Once the backstop is in place, those exclusions become void, and we will be working with regulators to maintain a stable marketplace.”
Congress adjourned in Dec. 2001 without having created a much-needed federal backstop for terrorism insurance coverage, resulting in serious repercussions for the recovering U.S. economy. As more insurance contracts expire daily, the economic consequences are worsening and spreading. Policyholders are finding that coverage for terrorism is wholly unavailable, very limited in scope with several conditions/restrictions, and/or very expensive. Unfortunately, individual consumers ultimately bear these increased costs in the form of higher prices for a variety of goods and services.
“Congress must act by quickly implementing a workable federal backstop mechanism. We urge the NAIC to continue lobbying for this comprehensive solution,” Blume added.
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