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CAS SEMINAR ON RATEMAKING

CAS SEMINAR ON RATEMAKING

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CAS SEMINAR ON RATEMAKING

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  1. CAS SEMINAR ON RATEMAKING GENERAL SESSION II EMERGING ISSUES MARCH 2001

  2. 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

  3. EMERGING ISSUES • AGENDA • Background • Impact of Gramm-Leach-Bliley • Need to modernize state regulation • Doing business globally • E-commerce • Optional Federal Charters

  4. EMERGING ISSUES • AGENDA • NAIC Activity • Statement of Intent • Improvement to State Based Systems • Coordinated Advertising, Rate and Form Review Authority (CARFRA) • Privacy • National Treatment of Companies

  5. EMERGING ISSUES • AGENDA • Planned NAIC Activity • Personal Lines • Next Steps/Implementation Plans

  6. EMERGING ISSUES • AGENDA • Some Major Company Implications • Privacy/Agents Licensing--What states must do • Filings • Data Collection • Market Conduct • Company Licensing/Optional Federal Charters

  7. EMERGING ISSUES • Background • Gramm-Leach-Bliley (Financial Services Modernization Act) enacted in November 1999 • Eliminated barriers to affiliations among banks, securities firms and insurance companies • New order of financial regulation

  8. EMERGING ISSUES • Background • Doing business globally--requires uniformity in: • Regulation • Privacy • Other areas • E-commerce

  9. 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

  10. REGULATORY MODERNIZATION • NAIC Statement of Intent • Improve Speed to Market • Operational Efficiencies • Commercial Lines Rate Regulation • Regulatory Framework Efficiencies • Reform system of rate and form filings • Coordinated Advertising, Rate, and Form Review Authority (CARFRA)

  11. REGULATORY MODERNIZATION • NAIC Statement of Intent • Market Conduct Reform • E-commerce that protects the consumer • National Treatment of Companies

  12. 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

  13. Improvements to State-Based SystemsOPERATIONAL EFFICIENCIES • State Transmittal and Review Standards Checklists • Uniformity Among State Filing Requirements • 30 Day Review and Compliance Timeframe • SERFF Implementation and Usage in All States

  14. Improvements to State-Based SystemsOPERATIONAL EFFICIENCIES • State Transmittal and Review Standards Checklists--Purposes: • Speed and Uniformity • Clear Guidance • Elimination of Unnecessary Regulations and Uniformity • Identify CARFRA Products       

  15. Improvements to State-Based SystemsOPERATIONAL EFFICIENCIES • State Transmittal and Review Standards Checklists— Recommendations: • Certification • 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

  16. Improvements to State-Based SystemsOPERATIONAL EFFICIENCIES • SERFF Implementation in All States: • Adequate Funding and Resources • Integration and Customization • Cost Structure • Support Staff • Customer Input/Value Added

  17. Improvements to State-Based SystemsSERFF Status

  18. Improvements to State-Based SystemsREGULATORY FRAMEWORK--DEFINITIONS

  19. Improvementsto 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 • InformationFiling • Most Commercial Lines • Workers’ Comp.* • File and Use • Workers’ Comp.* • Advisory Orgs. Filings* • Mortgage Guar.* • Prior Approval • Title Insurance • Mortgage Guar.* • Residual Mkts. • Advisory Orgs.* • Non-Competitive

  20. Improvementsto 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 Filing • Reference to Advisory Organization Filings • Reference to Other Insurers’ Filings • Products with Coverage Floors • File and Use • Most Commercial Lines • Workers’ Comp.* • Reference to Other Insurers' Filings • Advisory Org. * • Mortgage Guar* • Prior Approval • Title Insurance • Mortgage Guar.* • Residual Mkts. • Advisory Org.* • Non-Competitive*

  21. CARFRA • CARFRA (Coordinated Advertising, Rate and Form Review Authority) • Quality Reviews • Fast Review • Single Point of Filing and Review • National Standards

  22. CARFRA • Limited Launch—10 States • New York • Texas • Michigan • Pennsylvania • Maine • Oregon • Ohio • Indiana • Arkansas • Alabama

  23. CARFRA • Review Panels-Review Process • Filing with the CARFRA electronic repository • 5 Member Review team appointed from the pool of state analysts meeting qualification standards • Review of filing according to the national standards

  24. CARFRA • Review Panels-Advisory Recommendation • The review team’s Advisory Recommendation will be communicated to states • The review decision is adopted by the states

  25. CARFRA • Review Panels-MOU/Acceptance • MOU will commit state to accept a review panel’s recommendation unless: • State law or other relevant legal authority prohibits the action proposed; or • Regulatory action has been taken against the insurer that may prohibit the insurer from operating in the proposed manner.

  26. CARFRA • Review Standards—National Standards • Single set of national standards created for each limited launch product • Self Certification for State Specific Requirements • National standards created from a review of statutes, regulations, best practices, NAIC model acts, and input form interested parties • Process evaluated as possible basis for creating national standards for additional lines of insurance

  27. National Treatment of Companies • NAIC Plan • Adoption of Best Practices: Develop “best practices” applications by December 2000 and June 2001, respectively • Implementation by MOA: Implement national treatment process through memorandum of agreement between June 2001 and June 2002. • 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

  28. Planned NAIC ActivityPersonal Lines Rate & Form Regulation-Work Plan for 2001 • Study whether a file and use system for personal lines forms is appropriate • Study whether a file and use system or flex-rating system is appropriate for personal lines rates • Evaluate deregulation and competitive rating for personal lines rates

  29. Next NAIC Steps • Develop and Implement Transmittal and Review Standards Checklists • Implement SERFF—Plan Approved • Review Regulatory Framework (e.g. Commercial Lines File and Use and Informational Filings)—Assess Need for Legislation • Conduct Staff Educational Meeting • Communicate commitment to the Plan; and • Create a sense of urgency for completing the Plan with the specified timeframes. • NAIC Memorandum of Understanding

  30. Implementation Plans • Uniformity and Consistency Among State Filing Requirements--Implementation (July 2001–December 2001): • Eliminate All Desk Drawer Rules • Eliminate Unnecessary Regulatory Requirements • Maintain and Add Necessary Regulations • Uniformity • Standardized Transmittal Form

  31. 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

  32. 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

  33. 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

  34. Implementation Plans • Commercial 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

  35. Implementation Plans Competition and Information Needs • Information Needs/NAIC Charge: Study additional information needs to enhance process of monitoring and promoting competition (Dec. 2001). • Competitor Pricing Information: Obtain sufficient information to allow access to competitor pricing information. • Annual Statistical Reports: Continue to receive annual detailed statistical reports to facilitate market entry and solvency.

  36. 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.

  37. 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

  38. Some Major Company Implications • Privacy & Agents Licensing • Two issues states must address after GLB • Privacy--July 2, 2001 implementation • Agents Licensing--29 states must act by November 2002 • First major test of functional regulation after GLB

  39. Some Major Company Implications • Privacy & Agents Licensing • 2001 state legislative sessions--We’re working on it! • How important is uniformity? • 3 model privacy acts will not result in uniformity by July 2001 • Some local agent opposition • Is more federal intervention on the horizon?

  40. 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

  41. Some Major Company Implications • Data Collection • Regulators need data to respond to market disruptions and consumer complaints • Consumers demand more data from insurers • Access to individual insurer filings • More rate and form freedom vs. increased statistical reporting--Is there a trade off? • Can data requests be more standardized • Personal lines writers--More data but no less regulation?

  42. Some Major Company Implications • Market Conduct Modernization • Simplifying, streamlining, coordinating market conduct vs. raising the bar in all states • Is domestic deference the answer? • Catch 22 for personal lines writers? No upfront deregulation but backend market conduct regulation

  43. Some Major Company Implications • Market Conduct Modernization • Minimum Standards For Resources/ Alternative Mechanism • Enhance Coordination and Uniformity (Focus resources on violations that have the greatest impact on consumers) • Monitoring Mechanism • Encourage Self Audit and Self Reporting

  44. Some Major Company Implications • Company Licensing & Optional Federal Charters • Are we on ALERT yet? • Uniformity vs. streamlining--Is there compatibility? • National Treatment • Necessary? • Doable? • Pros and cons of domestic deference

  45. Some Major Company Implications • Company Licensing & Optional Federal Charters • Federal charters • Two regulatory systems better than one? • Where does state regulation end and federal charter begin? • Competitive equality for insurers • Known state system vs. unknown federal system

  46. 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

  47. CAS SEMINAR ON RATEMAKING • GENERAL SESSION II • EMERGING ISSUES • MARCH 2001