Monday, August 23, 2010

NAIC Summer Meeting Wrap Up

State insurance regulators have so many things going on right now, that it’s hard to keep a score card. But here are a few of the activities in Seattle this past week that are worth mentioning.

Implementing the structure to get the Patient Protection and Affordable Care Act up and running has been a major focus of the National Association of Insurance Commissioners, Kansas City, Mo., for months now. The Accident and Health Working Group, under the direction of Steve Ostlund (ALA), Julia Philips (Minn.) and Rick Diamond (Me.) are more than two-thirds of the way through the issue resolution documents between regulators and industry.

The NAIC also overwhelmingly approved a medical loss ratio blanks proposal that will allow insurers to report financial information to regulators to calculate medical loss ratios and any rebate required under the new federal law.

Additionally, regulators are starting work on the development of an NAIC model law on health exchanges that will give guidance to states as they begin to implement the legislation in 2011.

News was also delivered by Joel Ario for the Health Insurance and Managed Care “B” Committee that 45 states and the District of Columbia have had their grant requests for the creation of exchanges approved. Ario also announced that he is leaving his position as Pennsylvania insurance commissioner to take a position with Health and Human Services.

While the NAIC is working on PPACA issues, it is also focused on solvency modernization and international developments that weave solvency efforts into a global regulatory blanket. During the summer meeting a Solvency Modernization Initiative Roadmap was released by the NAIC’s Solvency Modernization Initiative Task Force. The document is a snapshot of the NAIC work to date.

The SMI focuses on five key areas:
• Capital requirements;
• Governance and risk management;
• Group supervision;
• Statutory accounting and financial reporting; and
• Reinsurance.

Statutory accounting is an area of concern for many insurers including PCI members, according to the PCI’s Jim Olsen. Insurers will be watching the process as regulators discuss the issue at the fall meeting and at a scheduled public hearing in December in preparation for a tentative decision in March 2011. Statutory accounting and equivalence issues are critical to U.S. insurers, Olsen explained.

The Antifraud Task Force and ERISA Subgroup met jointly for a public hearing on Limited Medical Benefit Plans, concentrating on the sales and marketing of the products to consumers and employers. The hearing was precipitated by a growing number of instances where health plans sold were misrepresented as comprehensive coverage, and consumers were left without medical insurance and often with significant debt. The NAIC heard testimony from representatives of the insurance industry and consumer groups. Regulators stressed the importance of clarifying disclosures at the point of sale that address what the plan specifically covers.

During the Antifraud session, Deirdre Manna of the Property Casualty Insurers Association of America, Des Plaines, Ill., commended the task force for its work including a draft model that includes strong confidentiality language but requested the removal of wording requiring specific number of hours of producer training be removed. "Insurers have many incentives to recruit, hire and train qualified personnel," she explained.

The NAIC plans to look further into how these plans may be affected by the PPACA laws and what regulators can do to address the current rise of scams related to these health care plans.

During the meeting, the Interstate Insurance Product Regulation Commission, an affiliate of the NAIC based in Washington, adopted individual long-term care uniform standards during a joint meeting of the Management Committee and Commission. The NAIC says that the standards include “strong readability requirements, consumer-friendly benefit trigger requirements and prohibition of mental health and nervous disorder exclusions." Prior to its passage Texas offered a proposal to establish stronger consumer protections.

The individual long-term care uniform standards only apply to new products filed with the IIPRC and will not affect existing long-term care products approved by a state or closed blocks of business. These uniform standards will now undergo a promulgation period and are expected to become available for filing before the end of 2010.

Insurers weighed in on a number of NAIC projects. The PCI’s Dave Kodama expressed concern that climate change questions that are supposed to be part of an aggregate report will now be required for individual companies and raised the issue of confidentiality of industry data.

PCI also weighed in on the NAIC’s decision to develop a model law to regulate insurance scoring modelers. Insurance scores are already heavily regulated by state law, according to Alex Hageli, PCI's director, personal lines policy.
“The decision to proceed with the development of the model is particularly ironic given the NAIC is also proceeding with a data to ostensibly gain more information about the use and impact of credit on insurance. It seems they require more information to study the use of credit by insurers, but nevertheless sure that a model law is needed to regulated scoring vendors,” he added.

However, consumer advocates including Birny Birnbaum, executive director of the Center for Economic Justice, Austin, Texas, have argued for years that the NAIC needs to address the credit scoring issue.

The NAIC's Producer Licensing Task Force met and discussed an industry proposal to streamline business entity licensing, but did not formally adopt standards, according to David Eppstein, representing PIA National. Task Force chair Linda Hall (AK) characterized the proposal as an excellent basis for discussion but wanted to give the regulators more time to review the proposed standards with their department staff.

The proposal removes the requirement for a business entity to register as a foreign corporation as a condition of obtaining or maintaining a nonresident license. The proposal is also supported by the American Insurance Association, Council of Agents and Brokers, Independent Insurance Agents and Brokers of America and the PIA National and PCI.

PIA National is working closely with other producer and carrier representatives to develop the uniform standards and we are confident that the NAIC will adopt them soon, according to Eppstein. It is possible that the standards could be adopted by the NAIC in October, he added. Once passed, Eppstein said that PIA will work to make sure that they are implemented nationwide either through regulation or legislation.

Life Actuaries at the Life & Health Actuarial Task Force also received an update from the Oliver Wyman actuarial team of Jeffrey Hancock, Amal Rajwani, and Ramy Tadros on the unintended consequences of C3 Phase II based on data from 12 of the largest variable annuity writers in the U.S. Using hedge assets as opposed to just cash assets can create unintended volatility on the balance sheet, the team told regulators. Among the potential action items that regulators could take, according to the team would be to simplify the balance sheet calculation and introducing a cap on Actuarial Guideline 43 as well as exploring peer review to ensure standards compliance. However, the team said that the updated paper, which is part of its continuing work, was not actually making recommendations, but rather listing potential options.

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