News Release

State insurance regulators convened for the 164th meeting of the National Association of Insurance Commissioners (NAIC) at its 2000 Fall National Meeting at the Wyndham Anatole Hotel in Dallas, Texas.

Highlights of the Fall National Meeting include:

• Privacy Issues Working Group adopts standards for the regulation of Consumer Financial and Health Information;
• National Treatment of Companies Working Group announces a four-step process to reach its goals for providing insurers national treatment and releases a Vision Statement outlining benefits of the national treatment program;
• Speed to Market Working Group announces the formation of two new subgroups to implement the proposed Coordinated Advertising, Rate and Form Review Authority, or CARFRA;
• NAIC presents 2001 proposed budget;
• The District of Columbia Department of Insurance and Securities Regulation, the Oklahoma Department of Insurance and the Tennessee Department of Commerce and Insurance receive SR 2000 recognition;
• New Mexico, Tennessee, New Jersey and Vermont earn second round accreditation; and
• NIPR announces 2001 Board of Directors.
  

Members of the National Association of Insurance Commissioners (NAIC) Privacy Issues Working Group adopted standards for the regulation of Consumer Financial and Health Information during deliberations at the organization’s Fall National Meeting.

"We believe a national standard for the privacy of personal health and financial information is critical for both consumers and financial institutions," said Kathleen Sebelius, Kansas Commissioner of Insurance, NAIC Vice President and Chair of the Privacy Issues Working Group. "Congressional action to protect privacy across the country will assure consumers that their personal information will be protected regardless of where they live and regardless of which financial entity collects the information."

The privacy regulation is tailored to provisions of the Gramm-Leach-Bliley Act regarding non-personal financial information. A section has been added protecting health information and provides for companies wishing to share, sell, market or give away health information, except for specific business exceptions, to get authorization from consumers.

The Department of Health and Human Services is currently drafting federal privacy regulations. These regulations may not go into effect until fall 2002.

"Consumers are worried about what will happen to their personal financial and health information from now until the Health and Human Services regulation goes into effect," stated Sebelius. "Our regulation provides a bridge for consumer protection until the HHS regulation is implemented."

The charge of the Privacy Working Group was to explore the uniform approach that the states should take with respect to consumer privacy provisions under the Gramm-Leach-Bliley Act. The goal was to write consumer-friendly model privacy regulations for insurance companies that are as consistent as possible with other financial rules, such as federal rules that pertain to banks.

Members of the NAIC have been discussing and addressing the privacy of personal information, including health information, for more than 20 years. In 1980, the association adopted the Insurance Information and Privacy Protection Model Act, which generally requires insurers to receive authorization from individuals ("opt-in") to disclose personal information. In September 1998, the association adopted the Health Information Privacy Model Act because of the special issues surrounding health information. This model treats personal health information as a different type of information that receives a higher level of privacy protection. The model uses an "opt-in" standard and establishes exceptions that allow insurers to carry on business functions without obtaining consumer consent.

The privacy regulation will be voted on by NAIC members during an Executive and Plenary conference call scheduled for September 26, 2000.

President Nichols Addresses Opening Session

"I want to make some brief comments about where we are in the process, but there is something I’d like to share with you. I shared this with the members of the IRES conference in New Orleans. It sort of talks about change and how we may have our perspectives based on where we have been and where we’ve come from. But people coming behind us, people who are now getting involved in the business of insurance, may have a different perspective. Each year the staff at Beloit College in Wisconsin puts together a list to try to give the faculty a sense of the mindset of the year’s incoming freshmen. I’d like to share with you that list just to show you the changes. Some of you, including myself, may feel old, but pay no attention to that — only recognize that there is a different perspective.

"The people who are starting college this fall across the nation were born in 1982. They have no meaningful recognition of the Reagan era and probably did not know he had ever been shot. They were very young when the Persian Gulf War was waged. Black Monday 1987 is as significant to them as the Great Depression was to our parents. There has only been one pope. They were 11 when the Soviet Union broke apart, and they do not remember the Cold War. They have never feared a nuclear war. They are too young to remember when the space shuttle blew up. Tienamen Square means nothing to them. Their lifetime has always included AIDS. Bottle caps have always been screw-off and plastic.

"Atari predates them and so do vinyl albums. The expression ‘you sound like a broken record’ means nothing to them. They have never owned a record player. They may have never heard of an eight-track. The compact disc was introduced when they were a year old. As far as they know, stamps have always cost 33 cents. They have always had an answering machine. Most have never seen a TV set with only 13 channels, nor have they seen a black and white TV. They have always had cable. There has always been a VCR, but they have no idea what BETA means. They cannot fathom not having a remote control. They were born the year the Walkman was introduced by Sony. Roller-skating has always meant in-line to them. Jay Leno has always been on ‘The Tonight Show.’ They have no idea when or why Jordache jeans were cool. Popcorn has always been cooked in the microwave.

"They never have seen Larry Bird play. They never took a swim and thought about Jaws. The Vietnam War is as ancient history as World War I and World War II and the Civil War are to many of us. They have no idea that Americans were ever held hostage in Iran. They can’t imagine what hard contact lenses are. They don’t know who Mork was or where he was from. They’ve never heard ‘Where’s the beef,’ ‘I’d walk a mile for a Camel,’ or ‘Ze plane, ze plane.’ For Texas, they do not care who shot J.R.; they have no idea who J.R. is. The Titanic was found; they thought we always knew where it was. Michael Jackson has always been white…that’s not my list.

"Kansas, Chicago, Boston, America and Alabama are places, not band groups. McDonald’s never came in Styrofoam containers. There has always been MTV, and they really do not have a clue how to use a typewriter.

"That’s what was shared with the teachers, and I thought that would be nice to share with you because it talks about change. It all focuses on the fact that we all have different perspectives, and what we’ve been through several years ago, or even yesterday, will be irrelevant to a lot of people that we will deal with today and in the future.

"So, well, here we are nine months into the 21^st century, and, boy, have things changed. Who’d have thought that we would have made a bold statement and have 51 jurisdictions sign the Statement of Intent, announcing a blueprint and a framework for insurance regulation in the future? And, yes, I did say insurance regulation and not state regulation, because we are like Texas — we’re bigger than that. Who would have thought that interested parties, all of them, would be saying we’re moving too fast? Who would have thought that some of our members would have said ‘I’ve missed a meeting or two and now I’m behind’? Who would have thought that we would say what we do and do what we say? Who would have thought that we are on course to meet our goal, some of our goals early, regarding what we’d set out? Who would have thought that, collectively, we are strategizing about certain state legislators that we want to focus on to make sure that our objectives are met? Who would have thought that there is a fire, a fire in our hearts and minds, to move forward, to be focused with direction, with commitment, with dedication?

"With all of that, there’s only two questions — two questions I want to share with you. Most of the commissioners received a gift from me that was given to me several months ago by one of my staff. It was the book Who Moved My Cheese?, by Spencer Johnson. I hope that some of you have already had the opportunity to read it, or start reading it, because that’s what I’d like to briefly comment to you about. The question that we now have to face is who moved the cheese. Who moved it for us? Now we have to think about being hungry. We have to think about the darkness, the confusion and the fear. And all of us are struggling with the question, saying ‘I sure would like to know who moved the cheese so I could do something about it, or at least say bring it back.’

"The second question is probably less important. It’s less about who moved the cheese but more about a question of who you are. A mouse? Or are you a man or a woman? The answer will determine where we ultimately end up.

"In the book, they talk about Sniff, Scurry, Hem and Haw. Hem and Haw are the two people; Sniff and Scurry are the mice. Now, Sniff is the guy who usually tries to smell out everything, always using his great nose to get involved. I’m sure some of you can think about some of our members who may have a nice size nose who sniff things out, who we would refer to as Sniff. Or we could be Scurry, always racing around, being in front of everyone. Sometimes the mice get lost, but after a while they usually find their way. Sniff and Scurry typically operate by trial and error.

"Or we could be the little people, Hem and Haw, always thinking and learning and using our past experience. Sometimes it holds us back, and sometimes it allows us to go forward. Now, Hem is angry and waiting for them to bring back the cheese — the good old days when state regulation ruled. We do it my way or no way, or hit the highway. Then there’s Haw. Now, Haw’s a little scared, he’s a little confused, but willingly, slowly, he’s willing to venture out and see if he can find some new cheese.

"The story of who moved the cheese is very simple. It’s about change — unexpected change. It’s about where we live, and that’s called the maze, and it’s what we want out of life. The book tells the story of these four individuals — two people and two mice — happy with the big, old room full of cheese. When the cheese runs out, the two mice decide to put on their shoes and go through the maze to look for some more cheese. But Hem and Haw sit down to discuss it, similar to the way we used to do some of our committee meetings. Sitting down saying, ‘Well, instead of putting something down on paper, let’s wait until they bring back the paper we did several years ago.’

"We sometimes talk to each other and say, ‘You know, I think they’re not coming back. I think no one’s going to deliver.’ We may have to venture outside of our comfort zone and see if there’s more cheese. And Haw does that. He goes out through the maze, always seeming to run into a dead end, picking up a little piece of cheese here and there, until ultimately he does come upon the cheese — the new cheese. He’s surprised to see that the mice have already been there eating the cheese and enjoying it, because you know most of us think mice are stupid, dumb and simple minded. But as human beings have the ability to think, so too do we think we can think our way out of it. Sometimes we must take the challenges in front of us and make them simple, which is what I believe we’ve done with the Statement of Intent.

"Well, the story sort of ends that Scurry and Sniff and Haw enjoy the cheese. Hem is sitting back at the original place, where all of the cheese is gone, waiting for it to come back, frustrated and angry that someone took his world, not willing to venture out, not willing to go forward, not willing to challenge himself and the establishment to do what he know he needs to do and what is right.

"Now, in the book, it sort of leaves some simple reminders about change. It says change happens and that we must keep moving with the change. We must anticipate change and be ready at all times whenever we have to change. We must monitor change. Smell the cheese often so you know when it is getting old. Adapt to change quickly. The quicker you let go of the old cheese, the sooner you can get new cheese. Change — always think of change. Enjoy and embrace change. Savor the adventure and the taste of new cheese. Be ready to quickly change again and again and again. That’s what we have been able to achieve in nine months, and that is the momentum we take forward in the future.

"This being my next-to-last meeting as president, I could not be more proud of how we, as an organization, have been able to move forward. And, boy, have we been challenged, not only among ourselves, but also by all interested parties. We have a great deal to stand up for and to be proud of. Not just what we as a body have done but what we are doing on behalf of our constituents across this nation.

"This is not, in the terms of the Statement of Intent, the plan of George Nichols, Kathleen Sebelius or Terri Vaughan because it was designed and established through the leadership. It is now truly embodied into this organization, and I believe each and every member will do what is right to ensure that what we have done over the years will continue to change and change for the good on behalf of the people we serve. There is one part of the book that is not there that is very, very important, and I’m hoping is in the second version. It’s the real question that we always must remember — who said it was our cheese in the first place?"

NAIC Working Group Announces Four-Step Process for National Treatment of Companies

The National Association of Insurance Commissioners’ (NAIC) National Treatment of Companies Working Group announced a four-step process to reach its goals for providing insurers national treatment at the association’s Fall National Meeting. The working group has also released a Vision Statement outlining benefits of the national treatment program.

"We continue to prove our commitment to the Statement of Intent and our timeline for modernizing insurance regulation," stated George Nichols III, Kentucky Insurance Commissioner, NAIC President and Co-Chair of the working group. "We believe this four-step process will meet our objectives while instituting greater regulatory efficiencies across all states and maintaining our focus on consumer protection."

The National Treatment of Companies Working Group will hold an interim meeting in November to receive further comments from interested parties and consumers on their proposal for implementing national treatment. The working group will then finalize the proposal at the NAIC’s Winter National Meeting in December.

The four-step process for National Treatment will:

1. Obtain commitments from all NAIC members to participate in the ALERT program, by December 2000, with active participation by all NAIC members by 2001.
   
2. Develop "best practices" in the areas of reviewing significant holding-company transactions and company licensing by December 2000 and June 2001, respectively, and encourage all states and the District of Columbia to administer such reviews on a more consistent and uniform basis.
   
3. Implement a national treatment process on a voluntary basis, through a memorandum agreement, as an interim step toward a legally functioning national treatment system between June 2001 and June 2002.
   
4. Develop enabling state legislation to provide insurance regulators and the NAIC the necessary legal authority to effectuate a national treatment system by June 2003.

The Vision Statement developed by the National Treatment of Companies Working Group explains the benefits of the proposal in concrete terms relative to gains in efficiency and increased consumer protection. A complete copy of the Vision Statement follows.

At the conclusion of the meetings on August 28-29, 2000, we realized that it was important to explain the National Treatment proposal in a concrete way so that the benefits of efficiency and increased consumer protection can be better understood.

In the final stage of National Treatment, we envision a legal framework in place so that regulation of company licensing, corporate issues, acquisitions and mergers, financial reporting and solvency, and market conduct examinations will take place in a highly coordinated and efficient manner. While all financial regulators currently take advantage of the efficiencies of the NAIC databases, and some of the processes such as the Financial Analysis Working Group and the Analyst Team Project, the current system lacks a method for consistent day-to-day coordination among state regulators. For small or regional companies, this is not essential. For major national companies, dealing with hundreds of inquiries annually, National Treatment will provide important efficiencies.

The primary domestic regulator will work hand in hand with the National Treatment Task Force, and the review of the National Treatment companies will be supported by the combined resources of the Task Force, including NAIC staff. Task Force members will be selected by the NAIC officers with the understanding of the time and resource commitments necessary. This means that the resources and analytical capacity of at least 10 states (the domestic plus nine task force members), plus staff support from the NAIC, will be applied to fully analyze National Treatment companies. There will also be a role for the states that are a major market for a National Treatment company, if they are not already on the Task Force. Today, many states may look at a particular company; but the most significant difference is that under the new system the review will be fully integrated and will involve formalized information sharing among regulators. This will provide consumers with the highest degree of protection.

For example, when a National Treatment company seeks to make a major acquisition, both the domestic regulator and the National Treatment Force will review the filing, and the turnaround time will be guaranteed to comply with new requirements (60 days for Financial Holding Companies). Instead of the current process, where separate isolated reviews are taking place in as many as eight to 12 states (where each separate domestic company is located), under this system, the company and affected consumers can expect one integrated, high-quality review. The various regulators will be exchanging information electronically, and working off the same databases. Ultimately, a single decision will be rendered jointly by the domestic state and the Task Force. Appropriate due-process protections will be provided.

Another good example is in the company licensing area. When a group or company makes a decision, for example, to enter a new market area and to do so via a new entity, currently the process involves 55 separate reviews to obtain a license in all jurisdictions. Many states resolve licensing applications in 60 to 90 days, but others may pend for months. Under National Treatment, there would be one coordinated review, and one decision, binding in all 55 jurisdictions.

Company filings about financial status, such as annual and quarterly statements, annual actuarial opinions and CPA audits, will all be subject to a coordinated review. Companies will no longer have to respond to multiple questions from multiple jurisdictions about small details of their filings. Any non-domestic state that has a question will be asked to contact the domestic regulator. In many cases, the regulators will resolve questions among themselves. If a non-domestic raises a significant issue, then the domestic state will be responsible for coordinating information gathering.

Market conduct examinations are currently a focus of much attention. Clearly, there is a need for improvement in this area. There is much dissatisfaction with the current system from regulators, consumers and insurers. While the specifics are being addressed by the Market Conduct Issues Working Group, the desired end result will produce a flexible, effective, and fair approach. Consumers should have assurance that significant problems will get consistent attention and a coordinated multistate solution that provides prompt relief. Companies should be able to understand their responsibilities, work with a predictable regulatory process, and be subject to a coordinated examination approach. Companies should not have to worry about being targeted for minor violations that cause no consumer harm.

The National Treatment proposal does not envision, however, that individual states would lose any capacity to take action to protect consumers from market abuses. In the market conduct area, the National Treatment goal is limited and focused on a coordinated multistate examination approach that is appropriate to the issue and is efficient and timely.

The National Treatment approach we propose addresses virtually every element that companies have complained about in recent years. This approach, in coordination with the Speed to Market solutions, will truly make remarkable changes. Most importantly, the National Treatment approach will provide the highest level of consumer protection.

Specific Benefits of National Treatment:

• significantly more efficient company-licensing process involving one coordinated review and a single decision, which would be binding in all jurisdictions;
  
• mergers and acquisitions will be reviewed in a coordinated and prompt manner, creating great efficiencies in the Form A process. Again, National Treatment would offer a coordinated review and a single decision;
  
• clear authority for the domestic state to make a large number of decisions, such as expanding a line of authority, or reviewing minor holding-company transactions. These would be solely within the domestic regulators’ duties and would be binding on all other states. Again, a single process and a single decision;
  
• coordinated solvency reviews, analysis and examination, eliminating duplicative inquiries from non-domestic states. Increased communication among key regulators, including the domestic state, the National Treatment Task Force and major market states;
  
• maximum use of important regulatory resources, so that consumer protection is enhanced, and the most skilled resources are focused on the companies with the greatest impact on consumers; and
  
• coordination of multistate market conduct examinations so that consumer problems will be promptly brought to the attention of the responsible regulators, and the process will be more predictable and efficient, with effective consumer relief as the primary goal.

Members of the National Association of Insurance Commissioners’ (NAIC) Speed to Market Working Group at the Fall National Meeting announced the formation of two new subgroups to implement the proposed Coordinated Advertising, Rate and Form Review Authority, or CARFRA.

"We need to move forward on a couple of concurrent tracks, and these two subgroups will help us pinpoint our efforts," said Frank Fitzgerald, Michigan Insurance Commissioner and Co-chair of the Speed to Market Working Group. "The time for raising questions is over, and the time for engaging in detail is here."

The CARFRA Subgroup will focus on the specifics of the CARFRA proposal and will be responsible for establishing the process and the standards. Michigan, Pennsylvania, New York, Texas, Oregon and Maine have been appointed to this subgroup, which hopes to have a finalized CARFRA proposal to submit to the Executive Committee for adoption in December. These six states, plus four others to be appointed later, will then participate in a limited launch of CARFRA in the first quarter of 2001.

The second subgroup, informally known as the "Page 9" Subgroup, will work on making improvements to the state-based filing and review process. This subgroup will be comprised of five states, one representative from an agent group, two from industry groups, and two from consumer groups. Ohio, New York, Alabama, Colorado and Nebraska will be the represented states.

This subgroup will work toward making the suggested improvements to the state-based system, listed on page nine of the Vision Statement. Some of these suggestions include:

• All states becoming members of and implementing SERFF;
• All states coming to an agreement concerning a uniform definition of what constitutes an "Exempt Commercial Policyholder" under commercial lines insurance products;
• States providing continuing training to filing review analysts to assure that consumers are protected;
• States hiring sufficient review staff to guarantee prompt turnaround time for filings;
• States evaluating the need for prior-approval requirements and considering implementing systems that rely more on competition than rate regulation to protect consumers; and
• States performing sufficient market conduct exams to provide appropriate consumer protection as they move away from reliance on prior-approval processes.

"Both subgroups plan to begin work immediately on their proposed charges and to submit their findings to the Speed to Market Working Group at interim meetings in November in Kansas City," said Diane Koken, Pennsylvania Insurance Commissioner and Co-chair of the Speed to Market Working Group.

The CARFRA proposal was developed by the Speed to Market Working Group and exposed in a Vision Statement at interim meetings in Kansas City in August. CARFRA would provide a single point of entry and a coordinated state-based review process, on a voluntary basis, for insurer rates, policy forms and advertising materials for those products identified for coordinated treatment by the CARFRA Board.

CARFRA membership is open to the chief insurance regulators of the states, the District of Columbia and the U.S. territories. The proposal provides that states will contribute regulatory staff to assist with review. A limited CARFRA staff would administer filings and assign them to a review team comprised of regulatory staff. The filings will be stored in an electronic repository that will allow state reviewers to analyze filings in a virtual office setting.

NAIC Budget Outlined, Conference Call Set

National Association of Insurance Commissioners (NAIC) Executive Vice President Catherine J. Weatherford outlined the association’s proposed budget for the year 2001 during the Fall National Meeting and announced an open conference call on the plan for November 6.

"The proposed budget for the year 2001 continues the policy of providing a prudent, sound, responsible budget that is supportive of the members of the NAIC. With a modest growth in expenses and staff, the 2001 proposed budget will allow us to continue to provide a high level of service to our members and move forward with our current operations," Weatherford said.

Weatherford said the proposed budget calls for projected revenue of $47.9 million, a 3.3% increase. Proposed spending in the 2001 budget is $46.9 million, a 2.8% increase next year over current spending. While this budget does not allocate any resources to implement the proposals currently under development in the Gramm-Leach-Bliley Working Groups, fiscal impact statements will be drafted after the Fall National Meeting for membership consideration.

Significant revenue changes from 2000 to 2001 are:

• Database fees are budgeted to increase approximately $79,675 due to an increase in premium volumes for insurers. This is offset by a continued increase in companies filing under the group fee cap of $150,000.

• Publications and subscriptions are budgeted to increase $784,000 due to increased sales of hardcopy guides and increased royalties from the sale of electronic products. Online accessibility and customization are expected to increase sales of financial data.
• Services revenue is expected to remain the same in 2001. SVO service fees are not budgeted to increase in 2001.

• National meeting registration fees are budgeted to increase $78,054. Fees have been increased to offset rising national meeting costs.
• Other income will increase by approximately $936,100 due to the use of NAIC assets, information, facilities and staff by the National Insurance Producer Registry (NIPR) and increases related to the revenue-sharing agreement with NIPR.

• Salaries and related employee taxes and benefits are budgeted to increase $957,296 and $106,941, respectively. These increases include an average annual increase of 4.25% on base salaries and an increase in head count of two. This line also includes a turnover factor of 14%.
• Professional services budgets have decreased $80,567 due to the completion of the SVO Efficiency and Effectiveness project.
• Computer services will decrease $80,650, as the cost of additional data feeds for the SVO is less than anticipated.
• Occupancy expenses reflect a $160,665 increase for a full year at the new headquarters and for utilities that were previously included in the lease payment.
• Equipment rental/maintenance costs will decrease by $224,184 due to the change from the mainframe to a client/server platform, which will be completed in March 2001.
• National and interim meeting expenses will increase $155,175 due to cost variations between 2000 and 2001 meeting sites.
• Education Programs are slated to decrease by $224,191 because of the completion of codification training in 2000 and a decrease in program offerings in 2001. The Education and Training Department will offer seven new programs for 2001.

"The proposed budget for 2001 will permit the NAIC to operate efficiently and effectively while providing many services and benefits to the membership and the insurance-buying public. I encourage all interested parties to submit comments on the budget and to take part in the open conference call on November 6," Weatherford said.

District of Columbia, Oklahoma and Tennessee Receive SR 2000 Awards

Three insurance departments were recognized for successfully implementing all 11 technology-based initiatives in the State Regulation 2000 (SR 2000) program. The District of Columbia Department of Insurance and Securities Regulation, the Oklahoma Department of Insurance and the Tennessee Department of Commerce and Insurance were recognized by the National Association of Insurance Commissioners (NAIC) in conjunction with the association’s Fall National Meeting.

This recognition brings the total number of states to have completed implementation of the program to 13. Arkansas, Kansas, Michigan, Minnesota, Missouri, Colorado, North Dakota, Iowa, Indiana and Ohio achieved their awards previously.

SR 2000 is a series of aggressive initiatives developed and supported by state regulators to streamline, strengthen and enhance state regulation. SR 2000 offers state regulators new regulatory tools to improve their ability to regulate the $820 billion insurance industry and to eliminate licensing and approval barriers in multiple states.

"Obviously the states are giving implementation of these initiatives a high priority," said George Nichols III, NAIC President and Kentucky Insurance Commissioner. "In fact, we are at 70% toward 100% compliance for all 55 states and U.S. territories in the SR 2000 program. What’s more, 75% of those 55 jurisdictions are more than half of the way toward completing all 11 initiatives with 12 states within two initiatives of completing the SR 2000 program.

"This is a tribute to the strength of state regulation," said Nichols. "Regulators and consumers benefit from the increased efficiency the State Regulation 2000 initiatives bring to the state departments. We’ve made a good start toward improving regulation in the new millennium.

"The District of Columbia has been diligent in meeting all the requirements for these initiatives," said Nichols. "This is an outstanding accomplishment for Commissioner Larry Mirel and his staff. "

"Oklahoma is the twelfth state to achieve the goal of completing all of the SR 2000 initiatives," Nichols stated. "This is an outstanding achievement for Commissioner Carroll Fisher and his staff, who have been leaders on many technology issues facing state regulation."

"Congratulations to Commissioner Anne Pope and her staff in achieving all the SR 2000 goals in the short time since she has taken office," stated Nichols. "Their efforts show tremendous commitment and dedication to using technology to improve state insurance regulation."

Four States Earn Second Round Accreditation

Four states were awarded second round accreditation certificates under the National Association of Insurance Commissioners’ (NAIC) Financial Regulation Standards and Accreditation Program. The certifications were presented at the Opening Session of the association’s Fall National Meeting. With these four awards, the total number of states receiving second round accreditation certificates is 40.

"We congratulate Superintendent Don Letherer (New Mexico), Commissioner Anne Pope (Tennessee), Commissioner Karen Suter (New Jersey), Commissioner Elizabeth Costle (Vermont) and all their staffs for a job well done. It is because of such dedicated regulators that solvency regulation continually improves," said NAIC President and Kentucky Insurance Commissioner George Nichols III.

The accreditation program requires accredited state insurance departments to undergo a top-to-bottom review every five years to assure they still meet the baseline standards.

Following an analysis of the program by NAIC members and other interested parties, the membership adopted a revised set of Second Round Accreditation Standards that continue to emphasize the membership’s commitment to strong financial regulation programs within the state insurance departments. The standards are considered more flexible and focus on critical solvency issues.

"The accreditation program was designed to ensure the financial health of insurance companies in the interests of consumer protection and to help maintain a stable marketplace," Nichols said. "As evidenced by the four states earning second round accreditation certificates today, it continues to offer states the flexibility to tailor the necessary laws to their own insurance codes."

"I especially want to commend Commissioner Anne Pope and the Tennessee Department for all the effort they put into regaining their accreditation. Their dedication and hard work in the past nine months have enabled them to become re-accredited in very short amount of time," Nichols said.

NIPR Board Members Announced

The 2001 National Insurance Producer Registry (NIPR) Board of Directors was announced at the NAIC’s Fall National Meeting. Iowa Commissioner and NAIC Secretary-Treasurer Terri Vaughan will replace North Dakota Commissioner Glenn Pomeroy as the president of NIPR.

"The work being done by the National Insurance Producer Registry is integral to the modernization and standardization of insurance regulation," Vaughan said. "I am honored to have been elected president of this organization."

New members to the board include William Anderson, NAIFA; Scott Cipinko, NALC; and Barbara Sutherland, NAII. David Gates, ACLI, is the 2001 NIPR vice president, and Cathy Weatherford, NAIC, is the secretary/treasurer. Andy Robinson of the Texas Department of Insurance, Lee Kincannon of the California Department of Insurance, and MaryEllen Waggoner of the Colorado Division of Insurance are returning members of the board.

Disclosure Model, Revisions to Producer Licensing Model Adopted by Market Conduct and Consumer Affairs Committee

Members of the National Association of Insurance Commissioners’ (NAIC) Market Conduct and Consumer Affairs (D) Committee adopted a model law designed to provide greater disclosure to consumers buying small-face-value life insurance policies. Also adopted were revisions to the Producer Licensing Model Act addressing limited-lines reciprocity.

The disclosure model outlines general disclosure requirements including disclosure of payment method, delivery of product, evidence of payment, company duties and language simplification standards. The Home Service Working Group adopted the model at the Summer National Meeting in June.

Revisions to the Producer Licensing Model Act were necessary to address limited lines reciprocity and contractual outsourcing of ministerial licensing activities to third parties.

The NARAB Working Group received comments on Subsection 4(b)8 of the Producer Licensing Model Act and discussed the progress of the Uniformity Subgroup of the NARAB Working Group at the Fall National Meeting.

Written comments from several industry groups were reviewed and discussed by the working group. The discussion revolved around how best to clarify the language in the Producer Model to reflect the intent of the Agent Licensing Working Group regarding treatment of Customer Service Representatives (CSRs). Proposals ranged from leaving the model intact, deleting Subsection 4(b)8 entirely, deleting the word "otherwise," and modifying the definition of negotiate. A conference call of the NARAB Working Group will be scheduled for September 15, 2000, to further discuss this issue.

NAIC/Funded Consumers Present White Paper on Consumer Protection

As follow up to the NAIC/Funded Consumers Public Hearing held on September 9, the consumers discussed creation of a new working group to address the national treatment of consumers or inclusion of consumer-proposed charges in the current NAIC structure. In addition to the new working group, a second charge called for the development of a model law to institutionalize advocacy on behalf of insurance consumers as a class before administrative and legislative bodies. Ultimately, the group decided to continue to address consumer protection issues in each of the GLB working groups. If consumer issues remain unresolved, creation of a new working group could be considered for 2001.

The consumer group also presented a white paper highlighting principles specific to ensuring consumer protections in the process of reinventing state insurance regulation. The principles will be addressed by all GLB working group as they complete their 2000 charges.

Small Face Amount Working Group Holds First Meeting

The Small Face Amount Working Group met for an organizational meeting at the Fall National Meeting. The group heard a report from the co-chairs of the Home Service (D) Working Group on the disclosure model and the white paper on the home service method of marketing insurance. The group discussed its charge and decided to narrow the charge given by the Executive Committee earlier in the summer to limit it to policies with a face amount of $15,000 or less. An interim meeting will be scheduled for late October to hear testimony from interested parties.

Fifteen States and District of Columbia Join Licensing Uniformity Subgroup

The following states indicated an interest in joining the Licensing Uniformity Subgroup: Alaska, District of Columbia, Idaho, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Nebraska, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania and Utah.

This subgroup was charged with reviewing the intent of subsection 4B(8) in the Producer Licensing Model Act and identifying the essential uniform elements of producer licensing that are not addressed in the Producer Licensing Model Act. The subgroup will initially focus on creating greater uniformity in the processing of licensing applications and not necessarily on licensing requirements that would require a statutory change.

A number of trade associations have submitted a letters identifying areas in the producer licensing process that would be good candidates for uniform standards. The subgroup asked that all regulators and interested parties submit a list of the specific items they would like to see made uniform, i.e., renewal cycle and continuing education requirements, to NAIC staff by September 30^th. The subgroup will likely have an interim meeting in conjunction with the Gramm-Leach-Bliley meetings tentatively being scheduled for late October or early November.

The Agent Licensing Working Group of the Market Conduct and Consumer Affairs (D) Committee announced that it will not take any further action on the Producer Licensing Model Act. The NARAB Working Group will refer any proposed modifications to the model act to the Market Conduct and Consumer Affairs (D) Committee and Plenary for final consideration.

The working group received proposed language changes to the Third Party Administrator Statute. The proposed language focused on requiring TPA’s to be licensed only in a home/resident state. TPA’s would then simply register in any non-resident state. The working group recommended states, at a minimum, require TPA’s to go through a registration process to operate in another state. The working group then expressed their support for states to have control over non-resident TPA’s.

A new appointed subgroup will draft proposed modifications to the Third Party Administrator Statute and draft proposed recommendations for a multi-state uniform application or registration process.

The working group discussed the Managing General Agents (MGA) Model Act and the licensing requirements for MGA’s. A second subgroup was appointed to draft proposed modifications to the MGA Model Act.

A conference call is planned for this working group prior to the NAIC Winter National Meeting to establish a work plan to ensure their charge is completed by the end of the year.

ALERT Working Group Reviews Progress of Three Subgroups

During the meeting of the ALERT Working Group, the charge from the National Treatment of Companies Working Group to streamline the company licensing procedures was reviewed. The working group’s goals are to complete implementation of the Uniform Certificate of Authority Application (UCAA) by signing up all states by year end; to review and eliminate state specific requirements that do not add value to the review process and to initiate the automation of the UCAA. There are 31 uniform states using the UCAA and the 32^nd state should be active before the end of September.

To meet these goals the working group established three subgroups – Automation Subgroup, State Specific Issues Subgroup and the Corporate Issues Subgroup. The Automation Subgroup reported that the timeline for automation sets a June 2001 completion date. The concept currently under consideration calls for a centralized database that serves as a routing mechanism through which applicants could submit UCAA applications to multiple states. The central database would provide efficiencies and assure that a single up-to-date application is available for review by each applicant state.

The subgroup is currently discussing three key points: (1) how to address signature and notary requirements, (2) how attachments will be handled with an application submission, and (3) the fee structure. The ALERT Working Group agreed that revisions to the UCAA would be released annually. The cut-off date for submission of revisions to the NAIC will be February 28. Any edits will be discussed and adopted at the Summer National Meeting with an implementation date of September. The older versions of the UCAA would be accepted until year-end.

The State Specific Issues Subgroup reported that more than 80 state-specific requirements have been identified by surveying the states. At least eight items have been eliminated and three requirements are under consideration for incorporation into the UCAA.

The Corporate Issues Subgroup identified nine corporate governance issues to be considered for inclusion in the UCAA. After surveying the states regarding procedures, the group has determined it will revise the Expansion Application to incorporate changing lines of business.

Creation of U.S.-China International Working Group Underway

The International Insurance Relations (H) Committee received a report from the IAIS Working Group on projects of the subcommittees and on the upcoming meeting in Cape Town South Africa, which included a report on the topics that will be presented by the Observer’s Panel.

The committee and interested parties were updated on progress made toward the creation of a U.S.-China International Working Group (IWG). The first meeting of the IWG is tentatively scheduled for November 6-10, 2000, in Beijing, China. Commissioner Nichols (KY) and Commissioner Sebelius (KS) are planning to attend, but the delegation will probably be expanded to include other commissioners. Per China’s request, the working group will only be made up of regulators and will not have representation by U.S. government or industry. Commissioner Nichols emphasized that the IWG will still be looking for input from industry regarding discussion items for the working group’s agenda for the meeting in November.

Consumer Protections Working Group Discusses Federal Rules

Illinois Director of Insurance and Co-chair of the Consumer Protections Working Group Nathaniel S. Shapo has written two letters to the OCC on behalf of the NAIC. The first letter concerned certain West Virginia laws related to OCC Docket No. 00-12, a Notice of Request for Preemption Determination.

The OCC was asked by the West Virginia Bankers Association for a determination that federal law preempts certain provisions of the West Virginia Insurance Sales Consumer Protection Act. A letter from the working group dated June 30, 2000, was sent to the OCC. A second letter was provided in response to the OCC’s request for comments regarding whether two Massachusetts insurance sales consumer protection provisions should be preempted by Section 104 of the Gramm-Leach-Bliley Act (GLBA).

The working group sent a letter dated Aug. 14, 2000, in response to OCC Docket No. 00-15, a Notice of Request for Preemption Determination. The working group believes that another request will be forthcoming concerning consumer protection laws in Rhode Island, however, nothing has been published in the Federal Register. Director Shapo’s letter pointed out that it is premature and possibly beyond OCC jurisdiction for them to rule now. Furthermore, any such considerations should involve close contact with state regulators. State authority to protect consumers should be protected liberally, particularly in the "safe harbor" areas.

The Consumer Protections Working Group is concerned with the Section 305, Federal Consumer Protection Rules. On Aug. 21, 2000, the Department of the Treasury’s OCC and Office of Thrift Supervision (OTS), the Federal Reserve System and the Federal Deposit Insurance Corporation (FDIC) jointly published their proposed insurance consumer protection rules. These rules are published in response to requirements of Section 305 of the GLBA.

The federal banking agencies are required to adopt consumer protection rules within one year. States can adopt laws that go beyond the consumer protections offered in the federal rules. The working group noted that the "prevent or significantly interfere" standard will apply to review of any state sales regulations. It only applies to sales at an office of the bank, or on behalf of the bank (OCC, FDIC, OTS, and The Federal Reserve Bank). It requires physical segregation from deposit areas, where practicable, does not address "lending areas," and allows one-time, nominal fees for referrals from employees who accept deposits. These fees cannot depend on whether the referral results in a sale. Persons who "sell or offer for sale" are required to have state licenses. The rules also prohibit tying or coercion and require a list of disclosures.

The working group plans to submit written comments to the four federal regulatory agencies and plans to meet with them to discuss the Section 305 rules before they are final. Comments must be filed by Oct. 5, 2000.

The working group plans to develop a model law that recognizes the 13 "safe harbors" to promote uniformity of application of the "safe harbors" among states. The working group intends to have an interim meeting in November 2000 to meet its charges.

The Managed Care Organization Working Group of the Regulatory Framework (B) Task Force has decided to amend the HMO Model Act to reference the Holding Company Model Act. The working group reviewed and discussed Section 5 of the model. A new draft will be distributed after the meeting containing changes agreed to during this meeting as well as those changes agreed to during the July 26, 2000, conference call. A conference call is planned for mid-October to review additional changes to Section 5, and the working group hopes to finalize this section at the 2000 Winter National Meeting in Boston.

Commissioner Larsen spoke to the working group about Maryland’s experience with the issue of downstream risk and reviewed the legislation that was recently adopted in Maryland to address that issue. A regulator from Colorado also spoke to the working group about that state’s approach to the issue of downstream risk.

Life Disclosure Working Group Adopts Revised Generally Recognized Expense Table (GRET)

The Life Disclosure Working Group of the Life Insurance and Annuities (A) Committee adopted a revised Generally Recognized Expense Table (GRET) for the Life Insurance Illustrations Model Regulation. The recommended effective date is Jan. 1, 2001.

The working group considered one comment letter on the revisions to the Universal Life Insurance Model Regulation and adopted the model after making the suggested changes. The changes make the model coordinate with the Life Insurance Illustrations Model Regulation. This is the last model in the list of those that were to be revised after the illustrations model was adopted.

When the Optional Form of the Life Insurance Disclosure Model Regulation with Yield Index was adopted, the group recommended that each time the disclosure regulation was amended, the alternative with the yield index also be amended. When the disclosure regulation was amended at the Summer National Meeting, all references to indices were deleted. The working group clarified its intent with regard to the alternative with the yield index by voting to recommend its deletion from the list of official NAIC model laws.

Crop Insurance Working Group Discusses Risk Protection Act

The Crop Insurance Working Group discussed the Agricultural Risk Protection Act of 2000 (ARPA). Farmers selecting innovative plans of insurance will receive an equal percentage of premium assistance that farmers selecting traditional multi-peril crop insurance would receive. It will also provide new education and expansion directives and also expands DOPP. ARPA makes substantial investment in research and development by allowing experts to research and develop new policies, provides pilot programs such as coverage for livestock and premium rate reduction, and establishes competitive grants to educate producers in underserved areas about the full range of risk management activities. FCIC plans to make crop insurance information available electronically and will develop methods to allow farmers and insurance companies to submit information electronically. The bill provides farmers with $8.2 billion over the next five years for subsidized crop insurance.

There was further discussion on sharing information on ineligible agents between the NAIC and Risk Management Agency (RMA). There was concern expressed that if an agent is disbarred by RMA, state regulators should have that information so they can take action against the agent.

The working group is concerned with a limited preemption of the state laws contained in Section 103 of the Agriculture Risk Protection Act of 2000. The "contiguous state" portion of the provision is cause for concern to the NAIC, particularly those members who are regulators in "contiguous states" to California and Florida where insurance codes allow certain forms of rebating.

The Life and Health Actuarial Task Force voted to expose for comment further modifications to the Actuarial Opinion and Memorandum Regulation. As previously reported, two significant features of the draft are: 1) the requirement that all companies perform an asset-adequacy analysis (i.e., elimination of the current Section 7), and 2) the incorporation of provisions that give commissioners flexibility in accepting actuarial opinions based on the laws of a company’s state of domicile. As has been previously discussed, the proposal to eliminate Section 7 has generated a great deal of controversy. The task force hopes to substantially complete this project by the Winter National Meeting, although a final vote is likely to be deferred until the Actuarial Standards Board completes its work on a related actuarial standard of practice. That work is anticipated to be completed sometime in 2001.

Health Entities Working Group Drafts State Advisory

The Health Entities Working Group of the Examination Oversight (E) Task Force wrapped up several remaining issues related to the annual and quarterly ratios. Ratios discussed included the combined ratio, premium and risk revenue to capital and surplus (for HMOs and HMDIs), unpaid claims to incurred claims and premium receivable to premium revenue for HMDIs.

The working group also finalized a quarterly profile that was discussed at the working group’s interim meeting. The profile represents a five-page summary of key information that can be obtained from the 2001 quarterly statement. The profile also includes key financial ratios that can be calculated on a quarterly basis.

In open session on September 10, the working group deliberated an advisory to the states drafted by interested parties. This advisory was drafted in response to an article published in a major newspaper that served to rank several health companies using the analysis ratios and benchmarks being developed by the working group. Interested parties felt this was inappropriate. The working group had previously concluded that some type of notification to the states was necessary in order to alert states that this situation has occurred and to provide guidance in responding to questions. Several modifications were made, and further discussions will be held in the near future to finalize the advisory.

Audit Software Working Group Discusses TeamMate 2000

The Audit Software Working Group of the Examination Oversight (E) Task Force received an update on the TeamMate 2000 Purchase, the result of which is that the initial minimum order of 501 copies has been met. The Riders will be signed after the national meeting and the order forwarded to Pricewaterhouse Coopers immediately thereafter. Product delivery is anticipated within two weeks.

Revised Information Systems Questionnaire (ISQ) access and training was discussed. The electronic version of the ISQ will be available through the NAIC file repository. The Audit Software Subgroup named a committee to develop a course curriculum for ISQ training classes.

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