Image of Mardi Gras New Orleans, Courtesy AP

The upcoming meeting of state regulators under their umbrella association, the National Association of Insurance Commissioners, will be working on some major policy issues and initiatives while in New Orleans, as several life insurance matters come to a head later this week. It’s a sea of agenda items and committee subgroups within committees, and  joint meetings of the groups,  subgroups, and their meetings, like Russian nesting dolls. You can jump in, or review for key items of interest. Don’t be afraid to add more to this roster – these are some that are obvious, but these don’t  include any closed meetings or unanticipated events, as in the regulator only meeting in November where an NAIC, agent-supported medical loss ratio (MLR) Resolution was first proffered to the group and met with a hostile reception from some. 

Here are some major items for NAIC consideration at the many meetings in the Big Easy:

1) International financial regulatory oversight and relations. The specter of AIG’s collapse and  the reforms of Dodd-Frank make the solvency oversight discussions of ComFrame –the International Association of Insurance Supervisors “Common Framework for the Supervision of Internationally Active Insurance Groups)  and the NAIC’s own homegrown ORSA [Own Risk and Solvency Assessment] major items on the agenda. Look for  the development of the ORSA Guidance Manual into a proposed model law and concerns from industry  with respect to the legal framework for the ORSA, confidentiality of proprietary  information protection concerns and how  an ORSA requirement might be incorporated into the US framework.

2) FIO. The burgeoning relationship or partnership among members of the NAIC, and the NAIC itself with the Federal Insurance Office (FIO) in Washington, which also goes to forming the NAIC’s own identity and role. The FIO report due to Congress, initially anticipated in late January, likely won’t be out this week, when the NAIC kicks off its meeting. Regulators still may be playing a guessing game as to what it contains, and if it will make any recommendations to Congress on standardization. Look for updates in the International Insurance Relations Committee and the NAIC/Consumer Liaison Committee meetings Saturday. “It is critical for the FIO to actively engage at the (IAIS), especially on key issues like IAIS financial stability systemic risk deliberations (G-SIFI talks) and efforts to enhance insurance group supervision (e.g. ComFrame). To that end, we would encourage U.S. state regulators and the NAIC to support the need for the FIO to be granted a seat on the IAIS Executive Committee,” Prudential wrote to the FIO in December.

Just last week, FIO Director Michael McRaith attended the IAIS summit in Basel, Switzerland. Just today, Rep. Ed Royce, R-Calif. sent a letter to the NAIC  leadership  about its struggle to define its status and role: “NAIC’s about-face on its self-proclaimed status in a period of just ten days last summer may best illustrate what appears to be an untenable position.  On July 28, 2011 before the House Financial Services Committee, NAIC president, Susan Voss, stated that the NAIC was not part of “some kind of … national regulatory system”[4] in response to a question regarding its perceived status as a regulatory body lacking traditional accountability. Yet, on August 7, 2011, in what appears to be an effort to demonstrate its relevance in the Dodd-Frank/FIO world, the NAIC claimed it was integral to helping “form the national system of state-based insurance regulation in the U.S”[5]  in an attempt to sell the importance of its pronouncement regarding the financial system. These positions seem, at the least, inconsistent. Given the impending FIO report to Congress on the state of the U.S. regulatory system, understanding precisely what the NAIC is and how it is governed—and reconciling the NAIC’s own inherently inconsistent statements about itself—is timely and relevant.” Royce stated in the Feb. 28 letter.

3) Market Conduct. There will be a big push from the leadership on market conduct exams, specifically Coordinating Examinations among states, and improving   uniformity, transparency, and  managing the cost/length of exams, perhaps through a central repository.  This is part of an ongoing effort, and has been discussed between ANIC leaders and FIO, and is something the NAIC is looking to perhaps create a central database on.  Again, confidentiality and information-sharing will focus the concerns of industry, especially as FIO emerges as another body interested in insurance market conduct information. See: http://www.lifehealthpro.com/2011/12/20/naic-pursues-comprehensive-market-conduct-assessme

4) Principles-Based Reserving. You don’t have to be an actuary to love PBR, the multi-yeared effort from the actuaries on up to fundamentally reform the existing formulaic or “rules-based” system for calculating reserves and replace it with a modern, principle-based approach is expected to be on track for a full manual report for the model law passage. Regulators are hoping to have enough (42) state legislatures pass the new PBR so that it can become the defacto model by 2015. 

5) AG 38. Need we say more? As an adjunct to PBR, Actuarial Guideline 38  and its application to in-force  and prospective business surrounding secondary guarantees in term life and universal life has a largely agreed-upon framework (the Kitzman Framework} but it is replete with many unanswered questions on its details, from actuarial methodology to in-force business that may increase reserves retroactively, with the accompany tax issues, even as prospective business may get the highly-favored PBR treatment. At the meeting The A (Life/Annuity) and E (Financial Condition) Committees will consider the approach developed by Joint A and E Working group on A.G. 38. Industry supports the Joint Working Group’s proposal to bifurcate the resolution into two distinct pieces; one for policies in force, and another for new business issued after some certain date. Latest news: Alaska Insurance Director Linda Hall, who had been opposed to the framework and treatment of in force business under her state’s standard valuation law, and who suggested a narrow approach, is resigning this spring.

6) Contingent Deferred Annuities. The A Committee also will consider a report from the Contingent Deferred Annuities Subgroup. The report concludes that contingent deferred annuities can be called annuities that can only be sold by life insurers, but its chair has also mentioned possibly reviewing all annuities with market-tied guarantees popular for the past decade or so. The report recommends that a new working group be formed to review current annuity regulations to ensure solvency and consumer protection appropriately apply to CDAs. One area of concern  to life insurers relates to the report’s language regarding all annuities with a guaranteed lifetime withdrawal benefit – or GLWB’, the rider that allows minimum withdrawals from the invested amount without having to annuitize the investment. Life insurers  say GLWBs have been examined and analyzed by regulators and current annuity regulations adequately and appropriately apply to these products.

7) The NAIC Accreditation Program will be re-evaluated and examined, to see if it still meets the needs of the states, and whether is should be expanded, even, or revised.

8) Producer Licensing. Improving uniformity and efficiency in licensing for agents and brokers continues to be a huge issue. The Producer Licensing (EX) Task Force will consider adoption of the Producer Licensing (EX) Working Group Report and receive update on NIPR (National Insurance Producer Registry ) activities. Another key issue here, from our property & casualty brethren at www.propertycasualty360.com is the implementation of the federal Nonadmitted and Reinsurance Reform Act (NRRA), part of the Dodd-Frank financial-services-reform legislation. The NRRA took effect in July 2011, but states are still struggling to coalesce around a single mechanism for sharing premium taxes. me states favor the NNAIC’s Nonadmitted Insurance Multi-state Agreement (NIMA) proposal. Other states favor the Surplus Lines Insurance Multi-state Compliance Compact (SLIMPACT), which is supported by the National Conference of Insurance Legislators (NCOIL) and many industry groups.  Still other states have passed regulations and legislation implementing the law that allows them to keep all premium taxes. Uniformity? We think not (yet.) Meanwhile, Alaska Insurance Director Linda Hall, who had been actively involved in surplus lines reform, is resigning this spring.

9) Health Care Reform Implementation. Progress and concerns in the state healthcare exchanges under the Affordable Care Act kicks off the open, public portion meeting Friday at 10 AM with the Exchanges Subgroup meeting of the B (Health Insurance and Managed Care) Committee. There will be an Update on the Center for Consumer Information & Insurance Oversight (CCIIO) exchange activities and  a discussion of State Options  related to exchange plan management by Teresa  Miller  of CCIIO. Miller recently left the Oregon Insurance Department. There will also be an update on SERFF, the System for Electronic Rate and Form Filing,  activities exchange plan management from the NAIC. 

According to the Center on Budget and Policy Priorities, as of November  2011, 34 states and the District of Columbia have introduced legislation to set up exchanges and in 10  of these states, the legislation has been passed by the legislature or enacted into law. Seven states and D.C. have legislation that remains pending in their respective legislatures and 17 states failed to pass exchange establishment legislation prior to the close of their 2011 legislative sessions.  However, a total of 19 states have passed binding legislation opposing elements of health reform; note that two states (Arizona and Florida) have more than one type of action, according to the National Conference of State legislatures. 2014 is the deadline for some kind of state exchange or federal partnership wit ha state to be established. Based on our annual analysis, mandated benefits currently increase the cost of basic health coverage from slightly less than 10%  to more than 50%  depending on the state, specific legislative language, and type of health insurance policy.”

The latest round of Level One exchange funding was announced in February, with $229 million in grants split among 10  states. Of the other Level One recipients, writes the law firm McKenna Long & Aldridge, “it is interesting to note that Arkansas will use its grant to design and implement an exchange in partnership with the federal government. In particular, Arkansas plans to use its Level One funding to connect its Medicaid program and the Exchange to a federal eligibility and enrollment portal, among other goals. Kentucky was the big winner among Level One awardees, receiving almost $58 million.” Rhode Island is already on its Level Two Grant funding already, but other states are still grappling with IT infrastructure design and development, among other issues.

10) Wildcard Events That Determine the Future. Expect robust hallway talk about the Supreme Court taking on an exhaustive review after oral arguments on the Affordable Care Act and facets of its constitutionality. The oral arguments will be heard over a three-day period from March 26-28, 2012. 

For your use in the hallways of the Hilton New Orleans Riverside, courtesy the National Conference of State Legislatures:

  • March 26, 2012 – Dept. HHS v. Florida (The legal question: Anti-Injunction Act- whether a taxation provision in the ACA prevents a court challenge until it is in effect, in 2014-15.
  • March 27, 2012 – Dept. HHS v. Florida (The legal question: the individual mandate – “Whether Congress had the power under Article I of the Constitution to enact the minimum coverage provision.”  – 2 hours for argument)
  • March 28, 2012 – National Federation of Independent Business v. Sebelius, Secretary of H&HS – (The legal question: Severability - “[T]o what extent  (if any) can the mandate be severed from the remainder of the Act?”   – 90 minutes for argument) – 10:00 a.m. EST;   Florida v. Dept. of H&HS (The legal question: Medicaid - “Does Congress exceed its enumerated powers … when it coerces States into accepting onerous conditions that it could not impose  directly by threatening to withhold all federal funding” for non-compliance?  – 1 hour for argument) – 1:00 p.m. EST