CAS SEMINAR ON RATEMAKING
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Transcript of CAS SEMINAR ON RATEMAKING
CAS SEMINAR ON RATEMAKING
GENERAL SESSION II
EMERGING ISSUES
MARCH 2001
EMERGING ISSUES
Moderator Carole J. Banfield, Insurance Services Office, Inc.
Panelists Mona Carter, Kentucky Department of Insurance Peg Ising, Ohio Department of Insurance Sonja Larkin-Thorne, The Hartford Financial
Services Group, Inc. Lenore Marema, Alliance of American Insurers
EMERGING ISSUES
AGENDA1. Background
1. Impact of Gramm-Leach-Bliley
2. Need to modernize state regulation
3. Doing business globally
4. E-commerce
5. Optional Federal Charters
EMERGING ISSUES
AGENDA1. NAIC Activity
Statement of Intent Improvement to State Based Systems Coordinated Advertising, Rate and Form
Review Authority (CARFRA) Privacy National Treatment of Companies
EMERGING ISSUES
AGENDA1. Planned NAIC Activity
Personal Lines Next Steps/Implementation Plans
EMERGING ISSUES
AGENDA1. Some Major Company Implications
Privacy/Agents Licensing--What states must do
Filings Data Collection Market Conduct Company Licensing/Optional Federal
Charters
EMERGING ISSUES
Background1. Gramm-Leach-Bliley (Financial Services
Modernization Act) enacted in November 1999
2. Eliminated barriers to affiliations among banks, securities firms and insurance companies
3. New order of financial regulation
EMERGING ISSUES
Background
1. Doing business globally--requires uniformity in:
Regulation Privacy Other areas
2. E-commerce
Major effort underway at the NAIC
Going beyond GLB--Undertaking Regulatory Modernization
What states must do after GLB
What states need to do after GLB
to modernize regulation
REGULATORY MODERNIZATION
NAIC Statement of Intent1. Improve Speed to Market
1. Operational Efficiencies
2. Commercial Lines Rate Regulation
3. Regulatory Framework Efficiencies
2. Reform system of rate and form filings1. Coordinated Advertising, Rate, and Form
Review Authority (CARFRA)
REGULATORY MODERNIZATION
NAIC Statement of Intent1. Market Conduct Reform
2. E-commerce that protects the consumer
3. National Treatment of Companies
Improvements to State-Based SystemsAREAS OF WORKPLAN
Operational Efficiencies/ Best Practices
Commercial Lines Rate Regulation
Regulatory Framework Efficiencies Commercial Lines Form Regulation
Personal Lines Forms & Rates
Personal Lines Regulation--Tabled
Improvements to State-Based Systems
OPERATIONAL EFFICIENCIES 1. State Transmittal and Review Standards Checklists
2. Uniformity Among State Filing Requirements
3. 30 Day Review and Compliance Timeframe
4. SERFF Implementation and Usage in All States
Improvements to State-Based Systems OPERATIONAL EFFICIENCIES
State Transmittal and Review Standards Checklists--Purposes:
1. Speed and Uniformity
2. Clear Guidance
3. Elimination of Unnecessary Regulations and Uniformity
4. Identify CARFRA Products
Improvements to State-Based SystemsOPERATIONAL EFFICIENCIES
State Transmittal and Review Standards Checklists— Recommendations:
4. Certification
5. State Agreement/Memorandum of Understanding• Apply only the requirements set forth in the transmittal and
review standards checklists• Recognize that certain decisions are made based on regulatory
judgment that cannot be articulated in checklists (exception rather than the rule)
• Require approval by Commissioner or designee for regulatory actions that conflict with checklists
Improvements to State-Based SystemsOPERATIONAL EFFICIENCIES
SERFF Implementation in All States:
1. Adequate Funding and Resources
2. Integration and Customization
3. Cost Structure
4. Support Staff
5. Customer Input/Value Added
Improvements to State-Based SystemsSERFF Status
All Lines (9)
Limited Lines (12/9 (P&C))
Licensed/Not in Production (17)
Not Licensed (13)
Arkansas
District of Columbia
Maine
New Hampshire
North Dakota
Ohio
South Dakota
Utah
Wyoming
California (L,D)
Colorado (H,P,C)
Indiana (Personal, L)**
Kansas (L,A)
Kentucky (L,P,C)
Missouri (L,H,P,C)
New York (Some P,C)**
North Carolina
Oklahoma (P,C)
Tennessee (P,C)
Texas (GL, CP, IM)
Washington (P,C,L,D)
Alabama**
Arizona
Connecticut
Florida
Illinois
Iowa
Louisiana
Maryland
Michigan**
Minnesota
Mississippi
Nebraska
New Jersey
New Mexico
Oregon**
Pennsylvania**
Wisconsin
Alaska
Delaware
Georgia
Hawaii
Idaho
Massachusetts
Montana
Nevada
Rhode Island
South Carolina
Vermont
Virginia
West Virginia
Improvements to State-Based SystemsREGULATORY FRAMEWORK--DEFINITIONS
Prior Approval File and Use Informational/ Competitive
No Filing
Approval Before Use File rates, rating manuals, actuarial information and policy forms on or before the date of use.
Compliance Review
Discretion to determine the nature and extent of this review
Presumption of prospective corrective action (overcome when retrospective is necessary based on nature and extent of consumer harm and other factors (ex: Costs)
File rates, rating manual, policy forms, explanatory memorandum. No supporting actuarial info required
No review for approval or compliance upfront
Statutory standards apply
Market Conduct Authority Remains
White Paper 1998 Definition
No Information Required
Statutory Standards Apply
Insurer must maintain all information relating to the rate, rate manuals and policy forms
Regulators may ask for information to ensure compliance with statutory requirements or at request of consumers or other insurers
*No discussion of ECP
*No Findings on Total Deregulation
Improvements to State-Based SystemsCommercial Lines Rates
No Filing Financial Guaranty
Aviation
Ocean marine
Employment Practices
Commercial Marine
Directors & Officers
Boiler & Machinery
Nuclear Insurance
Commercial Credit
“A” Rated
Consent to Risk
ECPs
InformationFilingMost Commercial Lines
Workers’ Comp.*File and UseWorkers’ Comp.*
Advisory Orgs. Filings*
Mortgage Guar.*
Prior ApprovalTitle Insurance
Mortgage Guar.*
Residual Mkts.
Advisory Orgs.*
Non-Competitive
Improvements to State-Based SystemsCommercial Lines Forms
No Filing Financial Guaranty
Aviation
Ocean marine
Employment Practices
Commercial Marine
Directors & Officers
Boiler & Machinery
Nuclear Insurance
Commercial Credit
“A” Rated
Consent to Risk
ECPs
Information FilingReference to Advisory Organization Filings
Reference to Other Insurers’ Filings
Products with Coverage Floors
File and UseMost Commercial Lines
Workers’ Comp.*
Reference to Other Insurers' Filings
Advisory Org. *
Mortgage Guar*
Prior ApprovalTitle Insurance
Mortgage Guar.*
Residual Mkts.
Advisory Org.*
Non-Competitive*
CARFRA
CARFRA (Coordinated Advertising, Rate and Form Review Authority)
1. Quality Reviews
2. Fast Review
3. Single Point of Filing and Review
4. National Standards
CARFRA
Limited Launch—10 States1. New York2. Texas3. Michigan4. Pennsylvania5. Maine6. Oregon7. Ohio8. Indiana9. Arkansas10.Alabama
CARFRA
Review Panels-Review Process
1. Filing with the CARFRA electronic repository
2. 5 Member Review team appointed from the pool of state analysts meeting qualification standards
3. Review of filing according to the national standards
CARFRA
Review Panels-Advisory Recommendation
1. The review team’s Advisory Recommendation will be communicated to states
2. The review decision is adopted by the states
CARFRA
Review Panels-MOU/AcceptanceMOU will commit state to accept a review panel’s recommendation unless:
1. State law or other relevant legal authority prohibits the action proposed; or
2. Regulatory action has been taken against the insurer that may prohibit the insurer from operating in the proposed manner.
CARFRA
Review Standards—National Standards1. Single set of national standards created for each
limited launch product 2. Self Certification for State Specific Requirements3. National standards created from a review of statutes,
regulations, best practices, NAIC model acts, and input form interested parties
4. Process evaluated as possible basis for creating national standards for additional lines of insurance
National Treatment of Companies
NAIC Plan
1. Adoption of Best Practices: Develop “best practices” applications by December 2000 and June 2001, respectively
2. Implementation by MOA: Implement national treatment process through memorandum of agreement between June 2001 and June 2002.
3. Possible State Legislation: If necessary, develop enabling state legislation to implement any component of national treatment system requiring statutory changes for enactment by June 2003
Planned NAIC ActivityPersonal Lines Rate & Form
Regulation-Work Plan for 2001
1. Study whether a file and use system for personal lines forms is appropriate
2. Study whether a file and use system or flex-rating system is appropriate for personal lines rates
3. Evaluate deregulation and competitive rating for personal lines rates
Next NAIC Steps
1. Develop and Implement Transmittal and Review Standards Checklists
2. Implement SERFF—Plan Approved 3. Review Regulatory Framework (e.g. Commercial
Lines File and Use and Informational Filings)—Assess Need for Legislation
4. Conduct Staff Educational Meeting Communicate commitment to the Plan; and Create a sense of urgency for completing the Plan with the
specified timeframes.
5. NAIC Memorandum of Understanding
Implementation Plans Uniformity and Consistency Among State Filing
Requirements--Implementation (July 2001–December 2001):
1. Eliminate All Desk Drawer Rules
1. Eliminate Unnecessary Regulatory Requirements
1. Maintain and Add Necessary Regulations
1. Uniformity
2. Standardized Transmittal Form
Implementation Plans
Review and Compliance Timeframe—30 Days Implementation:
Operational Standard: 30 Days whether Prior Approval, Deemer, or File and Use (45 day until checklists implemented in June 2001)
Extensions: One 30 day Extension (Exception rather than rule)
Review for Completeness: 15 Days
Implementation Plans
Review and Compliance Timeframe—30 Days Implementation:
Substantive Review Timeframe: 15 Days Target; 30 Days Final
Monitoring System: SERFF or other system by June 2001
Filing Frequency Requirements: Eliminate, except in flex rating
P&C Model: Revise to incorporate these recommendations
State Agreement/Memorandum of Understanding
Implementation Plans
Commercial Lines Rates Determine Specific Authority to Move to
Information Filing If Discretion, Identify Competitive Markets by
March 31, 2001 If Authority Does Not Exist, Seek Legislation (18
Prior Approval) If File and Use State, Consider Effectively
Implementing Information Filing (20 States) (10 States—Use &File)
Adopt Monitoring Competition Provisions
Implementation PlansCommercial Lines Forms Evaluate Laws for Authority to Move to File and
Use If Authority, Identify Competitive Markets by March
31 If No Statutory Authority, Seek Legislation NAIC To Monitor Implementation—Report by
March 31 Revise P&C Rate & Policy Model Law
Implementation PlansCompetition and Information Needs
1. Information Needs/NAIC Charge: Study additional information needs to enhance process of monitoring and promoting competition (Dec. 2001).
2. Competitor Pricing Information: Obtain sufficient information to allow access to competitor pricing information.
3. Annual Statistical Reports: Continue to receive annual detailed statistical reports to facilitate market entry and solvency.
Implementation Plans
Competition and Information Needs
Advisory Organization Loss Costs: Continue to allow insurers to use loss costs developed by advisory organizations.
Consumer Complaints Information: States and NAIC should publish consumer complaints information in appropriate form. States should publish insurer financial information.
Market Conduct Exams: Publish final results of market conduct examinations.
Public Availability of Filings: Make filings publicly available.
Implementation Plans
State Transmittal and Review Standards Checklists— Implementation:
State Filing Transmittal Checklist—June 2001 State Filing Review Standards Checklists—June 2001
Speed To Market Working Group Charges—March 2001• Provide guidance to states in developing transmittal and
review standards checklists• Develop published central filing repository for checklists
and procedures for publishing on state websites. • Develop procedures for amending checklists• Establish method to monitor states use of checklists• Establish procedure to disseminate information on state
disapproval reasons
Some Major Company Implications
Privacy & Agents Licensing1. Two issues states must address after
GLB Privacy--July 2, 2001 implementation Agents Licensing--29 states must act by
November 2002
2. First major test of functional regulation after GLB
Some Major Company Implications
Privacy & Agents Licensing1. 2001 state legislative sessions--We’re
working on it!
2. How important is uniformity? 3 model privacy acts will not result in
uniformity by July 2001 Some local agent opposition
3. Is more federal intervention on the horizon?
Some Major Company Implications
Filings Much to be gained from states’
implementing NAIC “best practices” Law is not always the problem
More legislative change may be needed SERFF: Speed to Market vs. Speed to
Destination Personal lines simplification needed as
well Short term success stories are needed
Some Major Company Implications
Data Collection1. Regulators need data to respond to market
disruptions and consumer complaints
2. Consumers demand more data from insurers Access to individual insurer filings
3. More rate and form freedom vs. increased statistical reporting--Is there a trade off?
4. Can data requests be more standardized
5. Personal lines writers--More data but no less regulation?
Some Major Company Implications
Market Conduct Modernization1. Simplifying, streamlining, coordinating
market conduct vs. raising the bar in all states
2. Is domestic deference the answer?3. Catch 22 for personal lines writers? No
upfront deregulation but backend market conduct regulation
Some Major Company Implications
Market Conduct Modernization1. Minimum Standards For Resources/
Alternative Mechanism2. Enhance Coordination and Uniformity
(Focus resources on violations that have the greatest impact on consumers)
3. Monitoring Mechanism4. Encourage Self Audit and Self
Reporting
Some Major Company Implications
Company Licensing & Optional Federal Charters
1. Are we on ALERT yet? Uniformity vs. streamlining--Is there
compatibility?
2. National Treatment Necessary? Doable? Pros and cons of domestic deference
Some Major Company Implications
Company Licensing & Optional Federal Charters
1. Federal charters Two regulatory systems better than one? Where does state regulation end and
federal charter begin?
2. Competitive equality for insurers
3. Known state system vs. unknown federal system
Future Directions: Will States Succeed in
Regulatory Modernization? Continued Federal scrutiny
GAO investigations Congressional hearing
Insurer insolvency: Has the tide turned? Consumer pressures Local pressures--Commission turnover Insurance department funding
CAS SEMINAR ON RATEMAKING
GENERAL SESSION II
EMERGING ISSUES
MARCH 2001