Financial State Regulation 2000 Gramm-Leach-Bliley Act of ...lobby.la.psu.edu/018_Personal_Medical_Privacy/... · Its role is that of “little sister” to the Journal of Insurance

Spring 2000, Volume VI, Issue 1 31

FinancialModernizationGramm-Leach-BlileyAct of 1999By NAIC Staff

Comments of StateInsurance AuthoritiesRe: FederalConsumer PrivacyRegulations UnderThe Gramm-Leach-Bliley ActBy NAIC Staff

The NAIC Adopts aStatement of Intent toModernize InsuranceRegulation

By Eric Nordman, CPCU, CIE

1Contents

4

State Regulation 2000By NAIC Staff

StreamliningCommercial LinesInsurance Regulation

By NAIC Staff

NAIC Education &Training DepartmentCalendar8

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A message to our readers:

It’s baaack! NAIC Research Department staffchanges and a year 2000 emphasis onimplementing financial modernizationprovisions of the Gramm-Leach-Bliley Act haveput the NAIC Research Quarterly somewhat outof commission over the past six months. But it’sback, and beginning with this issue it’s going toundergo a series of revisions which will,hopefully, boost the number of readers andsubscribers and attract more contributingwriters.

Traditionally the RQ has served as a vehicleto showcase insurance department and NAICresearch projects and studies, to share regulatorviewpoints and to present insurance topics ofglobal, national and local interest to our readers.Its role is that of “little sister” to the Journal ofInsurance Regulation and as such we are seekingto increase its circulation among regulators andother insurance professionals. In this issue, asin the past, the majority of articles were writtenby NAIC staff members in response to questionsthat come directly from our regulator membersand others who attend NAIC meetings and useNAIC publications, products and services.

NAIC staff researchers and writers intend tokeep you informed through the RQ. We will

continue to tell you about projects, programs andproducts developed by NAIC committees andworking groups, and we will still inundate youwith pages and pages of statistical and financialinformation from the world’s mostcomprehensive database. But, we want the RQto evolve. We want it to become a professionaljournal for our members. We want regulators touse the RQ as a forum to advocate regulatoryviewpoints, share regulatory theories andpromote regulatory ideas and innovations. Okay,we want you to write more articles.

If you would like to contribute anarticle(s) of interest on an insurance issue,share a department project or idea, providewritten commentary in response tosomeone else’s project or ideas, advertisean event or special activity or just plain getyour name in print, PLEASE contact:

Natalai Hughes, [email protected] orTeresa Bozeman, [email protected] forinformation on getting your articlepublished.

An annual subscription to the ResearchQuarterly is $100; individual copies are $25.Contact the NAIC Publications Department fororder information.

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NAIC Research Quarterly34ii

A Note From the Editor,

Hello. As the new editor of the NAIC ResearchQuarterly, I would like to point out a few of thechanges you will note in this issue and brief youon plans for future RQ issues now in progress.

Beginning with this issue, the RQ will bedistributed on a quarterly basis and designatedby seasons rather than months. This is intendedto associate the distribution of each RQ issuewith the NAIC quarterly national meetingswhich are also designated by season. We willschedule the release of the RQ approximately onemonth before each national meeting. Copies ofeach new issue, as well as back issue informationand subscription forms, will be available at theNAIC Publications display booth set up at eachquarterly meeting site. Contributing writers cansubmit articles and other information forpublication with the expectation that each RQissue will be exposed to more than 1,000 meetingattendees.

(Editor’s note: Staff changes delayedproduction of the RQ this year. Therefore, theSpring, Summer, Fall and Winter issues will bepublished and distributed over the next fourmonths as follows: Spring—August 1, Summer—September 1, Fall—October 1, and Winter—November 1. Beginning in 2001, the Spring issuewill be available February 1, the Summer issue—May 1, the Fall issue—August 1, and the Winterissue—November 1)

You should recognize a common theme amongthe articles in this issue—FinancialModernization and Regulatory Re-engineering.While not every issue will contain articles on asingle subject, we hope to publish more issueswith related articles, so each RQ provides readerswith as much information on a particular topicof interest as we have available.

Beginning with this year’s Fall issue, we alsoplan to regularly feature a different stateinsurance department person(s), research projector event. The Kentucky Insurance Departmentwill be our first victim…er, subject. We expectthe articles to be fun, as well as informative, andhope readers enjoy the opportunity to find outwhat’s happening in regulatory agenciesthroughout the United States and its territories.

Please e-mail your articles, suggestions forarticles, comments, questions, surveys andsurvey results, highlights of department researchprojects and activities, and any other type ofinsurance and regulatory research informationyou want to share to my attention atnhughes.naic.org. The RQ is a global forum withsubscribers in 17 countries. Subscribe today tothe RQ for the only insurance researchinformation written by and for regulatoryinsurance professionals.

Natalai Webster Hughes,Editor, Research Quarterly


FinancialModernizationGramm-Leach-Bliley Act of 1999By NAIC Staff

On November 12, 1999, President Clintonsigned the Gramm-Leach-Bliley Act (GLB) intolaw. The new law repeals the Glass-Steagal Actthat for six decades has kept the banking,securities and insurance businesses separate. Byrewriting federal banking laws, the GLB Actestablishes a framework covering theresponsibilities of federal and state regulatorsfor these financial industries. It permits financialservices companies to merge and engage in avariety of new business activities, includinginsurance, while attempting to address theregulatory issues raised by such combinations.

The NAIC strongly supported the objectivesof the GLB Act and actively participated in thedebate on financial services modernization.Members provided congressional testimony onthe NAIC’s position on consumer protectionissues, particularly the need to preserve the stateauthority to protect the privacy of its citizens.Augmented by the efforts of individual state

insurance commissioners, who directly contactedmembers of Congress representing their states,the NAIC sent letters presenting the views ofstate regulators throughout the debate on theAct.

As a result of NAIC and insurancecommissioner efforts, improvements were madeto the financial services bill that was finallypassed that ensure that the GLB Act is a lawthat enables states to continue effectivesupervision of insurance entities and consumerprotection efforts.

The NAIC has made the implementation ofthe provisions of the GLB Act a priority in theyear 2000. In doing so, NAIC membersestablished nine new working groups toimplement the Act and to set regulatorypriorities for the future.

According to NAIC President and KentuckyInsurance Commissioner George Nichols III,“The world’s financial markets are undergoingrapid change fueled by increasing reliance ontechnology, the globalization of the marketplaceand changes in United States financial serviceslaws. State insurance regulators are movingahead aggressively to implement the changesembodied in the Gramm-Leach-Bliley Act andto set our regulatory priorities in this newfinancial marketplace. The establishment ofthese working groups will help us design ablueprint to achieve those goals.”

The Gramm-Leach-Bliley ActImplementation Working Groups

The five GLB Working Groups report to theFinancial Services (G) Task Force, through theSpecial Insurance Issues (G) Committee, whichreports to the Executive Committee.

NAIC Research Quarterly2

(1) NARAB Working Group; Terri Vaughan(IA), Chair

This working group will track theimplementation of the NAIC Producer LicensingModel Act and explore using all the technologyresources available to the NAIC, including itsaffiliates. Its goal is to assume that stateregulation of the licensing of agents and brokersis preserved. A deadline of November 22, 2002is codified in the GLB Act for this importantwork.

(2) Definition of Insurance Working Group;Bill Kirven (CO), Chair

This working group will work on the definitionof insurance that is needed to implementfunctional regulation in accordance with Title IIIof Gramm-Leach-Bliley Financial ServicesModernization Act.

(3) Consumer Protections Working Group;Nat Shapo (IL), Chair

This working group will look at standards forconsumer protections that states can adopt toprovide greater uniformity among states. It isconcentrating on the “safe harbors” specified inthe GLB Act for bank insurance sales.

(4) Privacy Working Group; KathleenSebelius (KS), Chair

This working group will explore the uniformapproach that the states should take with respectto the consumer privacy provisions under theGramm-Leach-Bliley Act.

(5) Coordinating with Federal RegulatorsWorking Group; Terri Vaughan (IA),Chair

This working group will explore all aspects ofcoordinating with federal regulators to makefunctional regulation a reality.

The Regulatory Priority Working Groups

(6) Market Conduct Issues; Steve Larsen(MD), Chair

Reports to the Market Conduct and ConsumerAffairs (D) Committee.

This working group will examine market conductprograms in the states to identify the issues andconcerns that exist because of a lack of uniformityamong the states and evaluate of the merits ofestablishing voluntary uniform nationalstandards.

(7) The Speed to Market Working Group;Frank Fitzgerald (MI)/Diane Koken(PA), Co-Chairs

Reports directly to the Executive Committee

This working group will be asked to developstate-based, uniform standards for policy form-and-rate filings for appropriate product lines.They will consider development of a system fordomiciliary deference using one-stop filing basedon minimum standards for products issued on amultistate basis. They also will consider thefeasibility of developing an electronic repositoryfor filings and tracking data and a voluntarycertification process.

(8) National Treatment of Companies;George Nichols (KY)/ Betsy Costle (VT),Co-Chairs

Reports directly to the Executive Committee.

This working group will explore all options thatcould offer greater uniformity within a state-based system, including development of aproposal for national treatment of insurancecompanies through a single, uniform regulatoryprocess or development of a proposal for a state-based system that could provide the same


efficiencies as a federal charter for insurancecompanies.

(9 Financial Services Holding CompanyAnalysis/Examination/Review WorkingGroup; Jose Montemayor (TX)/Al Gross (VA), Co-Chairs

Reports to the Financial Condition (E)Committee

This working group will make recommendationsregarding the implications of the GLB Act on theregulatory authority, focus and proceduresprovided by the NAIC Insurance HoldingCompany System Model Act and accompanyingModel Regulation and recommend changes forconsistency with the functional regulatory

scheme set forth in the GLB Act and relatedFederal regulations.

Follow the progress of the nine workinggroups in the NAIC National MeetingProceedings now available online through theNAIC Website: www.naic.org.

Related Publications Available through theNAIC Website: www.naic.org

1) NAIC Position Letters to Federal Agencieson Gramm-Leach-Blileyw w w . n a i c . o r g / 1 n e w s / r e l e a s e s /grammleachbliley_act_naic.htm

2) Statement of Intent:The Future of Insurance Regulation


Comments of StateInsuranceAuthorities Re:Federal ConsumerPrivacy RegulationsUnder The Gramm-Leach-Bliley ActBy NAIC Staff

Led by Kathleen Sebelius, KansasCommissioner of Insurance, Vice President of theNAIC, and Chair of the Privacy Working Group,the NAIC submitted eight comment letters tofederal agencies in response to the Consumerprivacy provisions of the Gramm-Leach-BlileyAct (GLB). Incorporating language drafted bymembers of the Financial Services Moderniza-tion (G) Task Force, the letters respond to threeissues of considerable regulatory concern withregard to the privacy of insurance consumers.

Issue One: Defining NonpublicInformation

Federal agencies have proposed that GLB’sexpress statutory protection of a consumer’s“nonpublic personal information” means that anyinformation collected through the privatebusiness operations of a financial firm beconsidered nonpublic information, even if someof that information could be found elsewherepublicly.

Issue Two: Consumer “Opt-Out”Procedures

The GLB Act requires that consumers begiven a fair opportunity to opt-out of having theirnon-public personal information shared withnon-affiliated third parties.

Issue Three: Clarifying the Scope ofFederal Privacy Regulations

The privacy regulations proposed by federalagencies expressly include state insuranceauthorities in the list of regulators applyingfederal regulations, even though federal privacyregulations will not apply to insurance providersand state insurance regulators will have no rolein enforcing federal rules.

The letters were addressed to each of thefederal agencies responsible for issuing the finalstandards and will become part of the publiccomment record maintained by these agencies.The separate letters, sent March 31, 2000, to theFederal Deposit Insurance Corporation (FDIC),Federal Reserve Board, Federal TradeCommission (FTC), National Credit UnionAdministration (NCUA), Office of theComptroller of the Currency (OCC), Office ofThrift Supervision (OTS), and Securities andExchange Commission (SEC) are essentially thesame, with minor technical differences to addressthe specifics of each agency’s rule proposal. Thetext of the letters follows:

Section 504(a)(1) of the Gramm-Leach-BlileyAct (GLB Act) requires that federal bankingagencies prescribe consumer privacy regulationsmandated by the Act “after consultation asappropriate with representatives of Stateinsurance authorities designated by the NationalAssociation of Insurance Commissioners”(NAIC). The comments in this letter representthe views of State insurance authorities


designated by the NAIC in order to comply withthe GLB Act.

To make our comments easier to read andunderstand, we have avoided using precisestatutory or rule citations. Instead, we havereferred to sections of the proposed federal rulesby using the general numbering system forprivacy regulations that is shared by all theFederal agencies.

1. Except as noted below, state insuranceauthorities support issuing final federalprivacy regulations using the samelanguage and provisions contained in theproposed rules released for public commenton February 22, 2000.

We agree with the bulk of the federal ruleproposal. The absence of specific comments onany provision means we believe the proposedlanguage should be adopted as the final rulelanguage.

2. State insurance authorities recommendadding a new section to the proposedFederal rules that will clarify Federal andState jurisdiction over financial privacyrequirements.

The GLB Act is very complex and confusingregarding consumer privacy protections requiredor permitted under the Act. We have alreadyencountered mistaken views about who willprescribe and enforce privacy standards forinsurance providers. Some people mistakenlythink the Federal Trade Commission willestablish privacy standards for insurance, whileothers believe federal banking regulators willestablish privacy standards that apply to theinsurance activities of insured depositoryinstitutions.

Such regulatory confusion is unnecessary andcounterproductive to effective functionalsupervision of financial services firms. Becausefederal regulatory authority is widely perceived

as always superseding state regulatoryauthority, it would be useful for federal agenciesto expressly say their privacy rules do not applyto insurance providers.

State insurance authorities recommend thateach Federal functional regulator include aseparate section in its privacy regulationsaddressing the limits of its authority over privacyprotections regulated by the states. This sectionshould clearly say that none of the agency’sprivacy regulations apply to any insuranceprovider that is functionally regulated by stateinsurance authorities under Titles III and V ofthe GLB Act.

3. State insurance authorities supportusing practical examples to illustrate andclarify general privacy rules.

Section __.2 of the proposed federal rules askswhether the use of typical examples in themarketplace is a good way to explain how agenerally stated privacy rule may work inpractice. We agree that this method is veryhelpful, and that using hypothetical examplesto communicate regulatory requirements is agood way to achieve “plain English” rules.

4. State insurance authorities believe“nonpublic personal information” shouldbe defined according to the source of theinformation, not its content.

Section __.3(n) asks whether certainnonpublic personal consumer information shouldbe allowed to be disclosed without a consumer’sconsent if it could be obtained from publiclyavailable sources. Alternative A gives consumersgreater protection by requiring that publiclyavailable information actually be obtained fromwidely available public sources, such astelephone listings and government data, beforeit can used without giving the consumer a chanceto opt-out. Alternative B would permit financialfirms to use personal data without theopportunity for a consumer to opt-out if the datacould possibly be obtained from a public source,


even though the information has not actuallybeen obtained from that source.

We support giving consumers the greaterprotection they would normally expect as setforth in Alternative A. Everyone agrees thatcross-marketing permitted under the GLB Actwill not succeed unless consumers trust thattheir personal information will be keptconfidential by financial institutions. Peoplegenerally expect that disclosures of names,addresses, and telephone numbers will beavailable to the public if given to mostgovernment agencies or telephone companies.For that reason, some people are willing to payextra fees to have the telephone company not listtheir personal information.

By contrast, people normally expect that allpersonal information given to a financial firmwill only be used for conducting transactions withthat firm. Considering the GLB Act permitsfinancial firms to freely exchange nonpublicpersonal information among affiliates withoutconsumer consent, it does not seem a significantburden to require that normal consumerexpectations be followed by requiring anopportunity for people to opt-out of having theirnames, addresses, and other information sharedif they are the source of that information.

5. State insurance authorities support thecurrent proposed definition of “personallyidentifiable financial information” thatprotects consumer health information.

Section __.3(o) asks whether its definition of“personally identifiable financial information” iscorrect since it protects consumer healthinformation provided during a transaction witha financial firm. We believe this definition iscorrect as it stands. Personal health informationprovided when seeking insurance and otherfinancial services must always be protected.

In addition, state insurance authoritiesbelieve the Federal privacy regulations issued

under the GLB Act must be compatible withprivacy protection regulations being issued bythe Department of Health and Human Servicesregarding personal medical information. Werecommend a coordinated approach amongfederal agencies to ensure that medicalinformation is fully protected.

6. State insurance authorities believe“publicly available information” should bedefined to mean information that is actuallyobtained from public sources.

Section __.3(p) presents the question raisedin item 4 above. It also offers the samealternatives. We believe the same interpretationof consumer fairness should apply, and thatAlternative A is the right choice for federalregulators to adopt.

Quite simply, publicly available informationshould be gathered from public sources, not takenfrom consumers who do not intend to make theirpersonal information public when seekingfinancial services. Nobody benefits if consumersare faced with guessing whether some of theirpersonal information is publicly availableelsewhere, and thus is subject to being used byfinancial firms with no opportunity for aconsumer to opt-out.

7. State insurance authorities believe 60days is a more reasonable period of time topermit consumers to exercise their opt-outright.

Section __.7 asks if 30 days is a reasonableamount of time to permit consumers to exercisetheir statutory right to opt-out of informationsharing in the case of notices sent by mail.Considering mail delays and daily personalactivities that demand a person’s attention, wedo not believe 30 days provides an adequateopportunity to receive an opt-out notice andrespond to it. Since this only applies to personalinformation given to nonaffiliated third parties,we do not believe consumers should be forced to


reach a hasty judgment or stop their dailyactivities to respond in a two or three weekperiod.

Sixty days is a more reasonable period of timeto allow the sending of opt-out notices and thereceipt of responses from consumers who chooseto do so.

8. State insurance authorities recommendthe Federal rules clearly require that opt-out notices sent to consumers should beeasy and cost-free for those who wish toexercise their opt-out right.

Section __.8 sets forth the acceptable methodsby which financial firms can satisfy theirresponsibility to notify consumers that nonpublicpersonal information will be disclosed tononaffiliated third parties. We believe thepresent proposed rules and examples are fine asfar as they go. However, we recommend clearlyrequiring that:

• Acceptable opt-out decisions should not begiven orally by consumers.• Opt-out notices with convenient consumercheckoff boxes should be pre-addressed withreturn postage paid.• Opt-out notices and returns given inelectronic form by consumers who choose thisoption should comply with the UniformElectronic Transactions Act (UETA) in statesthat have adopted that law.

To avoid unnecessary trouble, consumer opt-out consent should be given in a written oracceptable electronic form that matches the waypersonal privacy notices are provided toconsumers by financial firms. Consumers shouldnot need to hunt for stamps or envelopes toexercise their opt-out right. Preaddressed andpostage-paid return forms are common in thebusiness world. We see no significant commercialburden in requiring that they be used toimplement basic consumer rights under the GLBAct.

States are presently modernizing the legalrequirements for conducting electronic businesstransactions through adoption of UETA. Thismodel law provides necessary regulatoryflexibility to deal efficiently with specialsituations relating to the importance of financialtransactions to consumers. Recognizing thattrend will help keep federal privacy regulationscurrent and compatible with electronic commerceinitiatives in the States.

The NAIC and state insurance regulators arepleased to offer our comments andrecommendations to support and improve federalprivacy regulations under the GLB Act. Anyquestions regarding this comment letter shouldbe directed to Jack Chesson in the NAICWashington office at 202-624-7790.

State insurance authorities have an importantstake in consumer privacy regulationsestablished by federal agencies because they willset the standard by which state privacystandards will be compared. We look forward toworking closely with federal functionalregulators as we strive to implement the GLBAct promptly and efficiently.

George Nichols IIICommissioner of Insurance, KentuckyPresident, NAIC

Kathleen SebeliusCommissioner of Insurance, KansasChair, NAIC Privacy Working Group

The letters are also available on the NAICWebsite: www.naic.org/1news/releases/grammleachbliley_act_naic.htm.


The NAIC Adopts aStatement of Intentto ModernizeInsuranceRegulation

By Eric Nordman, CPCU, CIE

In perhaps the most significant developmentfor insurance regulation since the adoption of theMcCarran-Ferguson Act in the 1940s, theNational Association of InsuranceCommissioners (NAIC) has unanimouslyadopted the Statement of Intent: The Future ofInsurance Regulation. This revolutionaryagreement among the nation’s insuranceregulators lays out a blueprint for significant andsubstantial regulatory reforms that go waybeyond anything that is required of them by therecently adopted Gramm-Leach-Bliley FinancialServices Modernization Act (GLB).

In the Statement of Intent, the insuranceregulators recognize that their “primary goal isto protect insurance consumers” They alsorecognize “that consumers as well as companiesare well served by efficient, market-orientedregulation of the business of insurance.”

The Statement of Intent notes,“ Insurance isunique in the world of financial services.Historically, insurance markets have developedfrom state to state reflecting the differences inpopulation, geography, weather patterns anddelivery systems. State regulation has addressedthat marketplace efficiently and effectively.”

Recognizing changing markets related todevelopments in technology and globalization,the insurance commissioners “are committed tomodernize insurance regulation to meet therealities of an increasingly dynamic, andinternationally competitive financial servicesmarketplace.” They pledge “to work cooperativelywith all our partners—governors, statelegislators, federal officials, consumers,companies, agents and other interested parties—to facilitate and enhance this new and evolvingmarketplace...”

The remainder of this article provides thedetails that have been outlined through theStatement of Intent. It has led to the formationof nine commissioner-level working groups (seepages 1-2 of this issue for working group namesand charges) within the NAIC charged withtimely implementation of the NAIC’s aggressiveagenda. Since it is such an historic document itis presented in its entirety, except for thepreamble.

“Implementing” the Gramm-Leach-BlileyAct

Proposed Amendments of State Laws

Working with our governors and statelegislators, we will undertake a thorough reviewof our respective state laws to determine neededregulatory or statutory changes to achievefunctional regulation as contemplated by theGramm-Leach-Bliley Act. Anti-affiliationstatutes, licensure laws, demutualizationstatutes, and various essential consumer

Eric Nordman is Director of the NAIC ResearchDivision.


protections, including sales and privacyprovisions, will be part of this review. We willmove forward quickly to both promulgateregulations and suggest statutory changes tofacilitate implementation of the new law.

Streamlined Licensing for Producers

We are committed to uniformity in producerlicensing and will work to implement effectiveuniform producer licensing standards. As anecessary interim step, the NAIC adopted theProducer Licensing Model Act for considerationby state legislatures. This model act providesspecific multistate reciprocity provisions tocomply with the requirements of the Gramm-Leach-Bliley Act.

While reciprocity is a short-term answer,uniformity is the efficient, long-term solution. Asa result, we have empowered the NAIC’s non-profit affiliate the National Insurance ProducersRegistry (NIPR) to develop recommendations fora streamlined, national producer licensingprocess that will reduce the cost and complexityof regulatory compliance related to the currentmultistate process. We believe that by leveragingwork already done on the Producer Database andthe Producer Information Network and by usingNIPR as a central clearinghouse for non-residentlicensing information, efficiencies will be realizedthat exceed expectations outlined in the NationalAssociation of Registered Agents and Brokers(NARAB) provisions of the Gramm-Leach-BlileyAct.

Financial Examinations and Reviews ofNational Companies

We will consider the implications of theGramm-Leach-Bliley Act on the regulatoryauthority, focus and procedures provided by theNAIC Insurance Holding Company SystemModel Act and accompanying Model Regulationand will recommend changes for consistency with

the functional regulatory scheme set forth in theGramm-Leach-Bliley Act and related federalregulations.

Building on initiatives already under way, wewill review our financial reporting and financialanalysis and examination processes in light ofthe new law and changes occurring in the marketplace. We will refine our risk-based approach toexamining the insurance operations of financialholding companies to place greater emphasis ona company’s unique risk exposures and how itmanages those risks.

We will recommend mechanisms to enhancecommunication and coordination among allfunctional regulators, and we will review the roleof the NAIC resources in supporting suchcommunication and coordination.

We will pursue development of a group-wideapproach to regulating insurer groups andenhancing coordination among states. As a partof this initiative, we will consider consolidatedfinancial statements for the insurance operationsof groups.

Implementing Functional Regulation andSharing Regulatory Information

We will continue to use the NAIC process forthe development of model agreements, and wewill build on our progress to date. We will activelyencourage the execution of information sharingagreements between the individual states andeach of the key federal functional regulators.

In addition, we will develop a comprehensiveagreement for the sharing of information amongstates.

The NAIC adoption of the modelconfidentiality law provisions demonstrates itscommitment to break down barriers to sharinginformation between the states. We will work


with state legislators to support suchconfidentiality legislation. We will pledge to formcoalitions with interested parties to promoteuniform and consistent enactment of theconfidentiality provisions.

Year 2000 National Regulatory Priorities

“Speed to Market”

Working with our governors and statelegislators, we will take steps to improve speedto market for insurance products. This willinclude development and implementation of asystem of deference to the state of domicile usingone-stop filing for products issued on a multi-state basis, where appropriate. To support thissystem, we will develop and implement state-based uniform standards for policy form and ratefilings for appropriate product lines. In pursuingthis evaluation, we will keep in mind the needfor flexibility to allow local treatment ofconditions produced by local markets. For linesthat do not lend themselves to uniformstandards, we are committed to reviewingmarket barriers for further efficiencies. We willtake steps to shift the focus of states away froma prior approval system, where appropriate. Wewill also develop an e-repository for filings, asystem for tracking data, and a state certificationprocess.

Regulatory Re-engineering

The benefits of uniform regulatory proceduresfor insurers selling products to large,sophisticated commercial policyholders arecompelling. Many states have adopted and areimplementing laws to re-engineer theircommercial lines regulatory functions.

We will evaluate the progress of specific stateswith respect to commercial lines reform andcompare those actions with the Property andCasualty Model Rate and Policy Form Law.

Based on this evaluation, we will consideramending the model and taking otherappropriate steps to achieve greater uniformityand consistent application of rate and formrequirements with our members.

We will continue to explore avenues to reduceunnecessary requirements for policies sold toinsurance purchasers with insurance knowledgeand market power. Where appropriate, we willexplore increased reliance on the benefits of opencompetition.

Market Conduct Reform

Market conduct is an essential regulatory tool.Its importance to regulators, producers andconsumers will increase as the “Speed to Market”reforms are implemented and the marketplaceevolves.

We will examine the current focus, structureand implementation of market conduct programsin the states to identify the issues and concernsthat currently exist in this area. Thisexamination will help us determine the meritsof voluntary uniform national standards as abasis for market conduct examinations andenforcement actions. In pursuing this evaluation,we will keep in mind the need for flexibility toallow local treatment of conditions produced bylocal markets.

Facilitating Electronic Commerce thatProtects Consumers

The insurance-buying public and industrymust be allowed to benefit from the broad rangeof opportunities that e-commerce offers. As aresult, we adopted the recommendations of theElectronic Commerce and Regulation WorkingGroup and endorsed the Uniform ElectronicTransactions Act (UETA) for consideration andenactment in each of the states. As e-commerce


evolves, we will continue to identify necessaryreforms that will facilitate e-commerce whilemaintaining important consumer protections.

Treatment of National InsuranceCompanies

We are committed to exploring all options thatcould offer greater uniformity within the state-based system of insurance regulation.

An initial step toward this streamlined systemis already available through the AcceleratedLicensure Evaluation and Review Techniques(ALERT) program, which is a streamlinedinsurer licensing procedure. We will encourageall states to join ALERT and initiate use of thenewly developed expansion application process.This will allow streamlined admissions for thosecompanies already admitted in one ALERT statesimply through the filing of an expansionapplication in another ALERT state. Theexpansion application process introduces

elements of reciprocal reliance on the moredetailed work of the state reviewing the completeapplication. We will pursue development of ane-repository for company applications to facilitateone-stop filing.

In addition, we will evaluate the broad rangeof regulatory issues and concerns and develop aproposal for a state-based system that couldprovide the same efficiencies as a federal charterfor insurance companies.”1

As you can see from this comprehensivedeclaration to reform the state regulatorysystem, the insurance commissioners, directorsand superintendents of this nation intend tomake regulation more effective for consumersand more responsive for insurers. The ResearchQuarterly will closely follow the progress of thenine commissioner level working groups that theNAIC has charged with moving forward thisaggressive plan. Watch for details in upcomingissues.

1 Excerpts taken from the National Association of InsuranceCommissioners Statement of Intent: The Future of InsuranceRegulation that was adopted by the NAIC on March 13, 2000.


State Regulation2000

By NAIC Staff

State Regulation 2000 consists of 11 NAICtechnology initiatives designed to increase theefficiency of state regulation of the insuranceindustry through increased uniformity andconsistency of state regulatory processes.Implementation of these initiatives is expectedto enhance and strengthen state regulation ofthe insurance industry in this 21st century. AnSR2000 “Certification of Compliance” is awardedby the NAIC to any state that implements all 11initiatives. Currently 11 states and the Districtof Columbia have implemented all SR2000initiatives. They are Arkansas, Colorado,Indiana, Iowa, Kansas, Michigan, Minnesota,Montana, North Dakota, Ohio and Oklahoma.

The SR2000 goals are to:• Provide states with new regulatory tools to

enhance their ability to regulate a $750billion industry

• Leverage state and NAIC technology toachieve economies of scale throughautomation initiatives

• Increase the uniformity and consistency ofregulation and regulatory processes acrossstate boundaries

• Eliminate licensing and approval barriers forinsurer operation in multiple states

These technology initiatives will dramaticallyenhance communication and interaction betweenthe nation’s insurance industry and its regulatorsin the areas of:

• Agent and broker licensing and continuingeducation requirements

• Multistate insurer licensing procedures• Rate and form filing• Financial/market conduct examinations• Insurance law changes• Solvency Surveillance

Agent Licensing and Continuing Education

National Insurance Producer Registry(NIPR)

State regulators and the NIPR are dedicatedto creating uniformity in producer licensing areworking to implement effective uniform producerlicensing standards. By using NIPR as a centralclearinghouse for non-resident licensinginformation, efficiencies will be realized thatexceed expectations outlined in the NationalAssociation of Registered Agents and Brokers(NARAB) provisions of the Gramm-Leach-BlileyAct.

1) Producer Information Network (PIN)

PIN is a project designed to streamline theproducer licensing process. It is an electroniccommunication network that links stateinsurance regulators with the entities theyregulate to facilitate the electronic exchange ofproducer information. The PIN project willbenefit insurers, regulators and consumersthrough a reduction in paperwork and data entry


that will result in reduced costs and fasterturnaround time for licensees. Several elementsmake up PIN. These include the ProducerDatabase (PDB), automated producer licensingand appointment processes, resolution ofreciprocity concerns, and harmonizingcontinuing education requirements. Nationaldata standards will be developed for theelectronic transmission and exchange of licenseapplication, license renewal, and appointmentand termination information. All data flowingover PIN will conform to these standards.

2) Producer Database (PDB)

The PDB is an electronic database consistingof information relating to insurance agents andbrokers (producers). The PDB links participatingstate regulatory licensing systems into onecommon system establishing a repository ofproducer information. The PDB will also accessother information sources such as the RegulatoryInformation Retrieval System (RIRS). The PDBprovides immediate access to detailed producerdisciplinary history. The system will send anelectronic notification to state a user ifadministrative action is taken against a licensedproducer in their state, or if a producer no longerholds an active resident license.

The following information is maintained inthe database and is updated daily byparticipating state insurance departments:

• General demographic information relating toall producers such as name, Social Securitynumber, address(es) and phone number(s)• License information such as states licensed,license numbers, authorized lines, license statusand continuing education compliance indicator• Appointment information such as companyappointments, effective date, termination dateand termination reason

For more information on PIN and PDB contact:

Tifany Roark NAIC, 2301 McGee, Suite 800 Kansas City, MO 64108-2604 - (816) 783-8466 [email protected]

3) Uniform Treatment

The uniform treatment project is an initiativeintended to address the multi-state licensingsystem currently in place. Uniform treatmentmeans that all participating states agree tolicense non-resident producers, who are in goodstanding in their resident states, withoutimposing additional restrictions or qualificationsnot required of resident producers. To helpfacilitate this process, the Producer InformationNetwork (PIN) Working Group of the NAICdeveloped

• the Declaration of Uniform Treatment,• the Uniform Application for Individual Non-

Resident License and• the Uniform Application for Business Entity

Non-Resident License/Registration.

The Declaration of Uniform Treatment is acommon statement of principles concerning non-resident licensing. By signing the Declaration,a state commits itself to treating resident andnon-resident producers in the same way andcommits to accepting the uniform applicationsas the only non-resident licensing applications.Under the new system, a producer residing in astate that participates in the uniform treatmentproject is able to take advantage of a morestreamlined, efficient licensing system. Aproducer only needs to complete one non-residentuniform application that can be filed in statesthat have agreed to accept the uniform non-resident application. All producers must continueto meet and fulfill the state specific licensingrequirements that may be in place in theparticipating states.


In December 1999, the PIN Working Groupchanged its name to the Uniform ProducerLicensing Initiatives Working Group to betterreflect the overall goal of the working group. Inresponse to the passage of the Gramm-Leach-Bliley Act (GLB) and the potential creation ofthe National Association of Registered Agentsand Brokers (NARAB), the Uniform ProducerLicensing Initiatives Working Group modifiedthe Declaration of Uniform Treatment anddeveloped the Declaration of Reciprocity. TheDeclaration of Reciprocity was circulated to thestate insurance commissioners, directors andsuperintendents in July, 2000 and sets forth thekey licensing reciprocity mandates of theGramm-Leach-Bliley Act . While the Declarationof Reciprocity is a necessary interim step topreventing the creation of NARAB, the NAICcontinues to pursue uniform licensing standardsthat can be utilized in all states. States willcontinue to use the Uniform Non-ResidentLicense Applications.

For more information contact:

Tim Mullen NAIC, 2301 McGee, Suite 800 Kansas City, MO 64108-2604 - (816) 783-8260 [email protected]

4) Continuing Education Reciprocity (CER)

On July 1, 1998, the NAIC’s Midwestern Zonelaunched a project to simplify continuingeducation (CE) course approval filings forregulators and CE providers. Members of theMidwestern Zone signed a reciprocity agreementthat provides, in essence, that one member statewill accept the CE credit award given to a courseby another member state. The agreement doesnot require any state to accept CE filings that itwould not approve otherwise. For example, if astate does not award CE credit for a topic suchas sales and marketing, that state would nothave to give credits for the portion of a course

that included that topic. The Midwestern Zonenow invites other states to consider joining thisproject. If your state is interested inparticipating, the process is as follows:

1. Review the information and forms on theNAIC web site: www.naic.org

2. Make any needed changes in policies or formsto comply with the Reciprocity Agreement.

3. Forward a commissioner-signed “Addendumto the Zone Agreement” to the MidwesternZone Chair. (Please include a letter statingthe date your state will be prepared to acceptreciprocity filings).

4. The Midwestern Zone will act on requests tojoin the project at Zone meetings held at theNAIC quarterly meetings.

5. Inform your providers of the start date forreciprocity filings.

For more information about CER contact:

Ron Hartsock Asst. Deputy Director Illinois Department of Insurance 320 West Washington Street Springfield, Illinois 62767-0001 217-785-2263 [email protected]

Multistate Insurer Licensing Procedures

1) Accelerated License Evaluation ReviewTechniques (ALERT)

The Accelerated Licensure, Examination andReview Techniques Project is another initiativethat is designed to streamline the insurerlicensing process in multiple states. The ALERTWorking Group has designed the UniformCertificate of Authority Application (UCAA) andan expansion application to reduce thetimeframe, paperwork, and expense of licensinginsurers in multiple states.


The Uniform Certificate of Authority Application(UCAA)

The UCAA is designed to allow foreigninsurers to file copies of the same application foradmission in Uniform States. A “Uniform State”is one that is committed to using the UCAAreview process for company admissions. EachUniform State still performs its own independentreview of each application; however, the projectis designed to eliminate the need for an insurerto file different applications, in different formatsin each state.

The UCAA includes two applications. ThePrimary Application is for newly formedcompanies seeking admission into their state ofdomicile and for insurers wishing to re-domesticate to a Uniform State. The ExpansionApplication is for use by insurers that wish toexpand into one or more Uniform States.

This UCAA has five sections designed to guidean insurer through the admission process:

• Application Review Process;• Instructions and Format for Submission of

Application;• Uniform Admission Requirements;• Guidelines & Sample Language; and• Referrals to Other Agencies & Resources.


Donna Garrett NAIC, 2301 McGee, Suite 800 Kansas City, MO 64108-2604 - (816) 783-8262 [email protected]

2) Regulatory Information Retrieval System(RIRS)

The Regulatory Information Retrieval Systemis a nationwide database containing adjudicatedregulatory actions against producers and

insurers. RIRS enables state insuranceregulators to track the regulatory history of anindividual or firm seeking licensure in their state.The database contains more than 100,000adjudicated actions in including the origin,reason and disposition of the action. Informationabout cease and desist orders, licenserevocations, refusals, suspensions, rehabilita-tions, fines and civil actions is also maintainedin the database. RIRS has been operational sincethe 1960s and has been computerized since 1985.Users can make single or batch inquires and dataand reports are publicly available.


Angela SeubertNAIC, 2301 McGee, Suite 800Kansas City, MO 64108-2604 - (816) [email protected]

Paula Piette NAIC, 2301 McGee, Suite 800 Kansas City, MO 64108-2604 - (816) 783-8461 [email protected]

Melissa Montgomery NAIC, 2301 McGee, Suite 800 Kansas City, MO 64108-2604 - (816) 783-8474 [email protected]

Jeff Jackson NAIC, 2301 McGee, Suite 800 Kansas City, MO 64108-2604 - (816) 783-8463 [email protected]

3) Special Activities Database (SAD)

The Special Activities Database is a collectionof information that can be used for investigativepurposes when reviewing the activity of aninsurer or individual engaged in the business ofinsurance. SAD tracks investigative actions and“Suspicious Activities For Entities Of RegulatoryConcern.” The database has been in operation


since 1989 and currently monitors more than7,200 entities and 11,800 activities. Informationincludes state contacts, demographics and cross-referenced relationships. Because of theconfidential nature of the information contained,only regulators have access to SAD


Paula PietteNAIC, 2301 McGee, Suite 800Kansas City, MO 64108-2604 - (816) [email protected]


4) The Complaints Database System (CDS)

The Complaints Database System is anationwide database, available to insuranceregulators only, that is used for referencing andanalyzing consumer complaints filed with stateinsurance departments. Complaints reported tothe insurance departments are submitted to theNAIC where trend analyses are preformed andcomplaint index reports are developed.Regulators are able to review this informationduring market conduct exams and to analyzecomplaint experience relative to premiumvolume and to other insurance companies. TheCDS has been operational since 1991. Thedatabase contains more than 1.3 million closedconsumer complaints that are broken down bytype, reason and disposition. CDS informationalso facilitates federal Medicare supplementreporting requirements.


Trish Skahan NAIC, 2301 McGee, Suite 800 Kansas City, MO 64108-2604 - (816) 783-8265 [email protected]




Rate and Form Filing

System for Electronic Rate and Form Filings(SERFF)

The System for Electronic Rate and FormFiling is a project designed to provide efficiencythrough technology for the insurance rate andform filing process. SERFF is unique in that itis a joint, cooperative initiative between the stateinsurance departments and the insuranceindustry. SERFF uses a point-to-point electroniccommunication tool where filings are sent frominsurers over the Internet and routed to the statefrom a central server that captures onlyinformation related to tracking the filing. Stateregulators and insurers communicate about thefiling electronically using the network. All filingsare stored locally at the state site. Since SERFFreduces the time and cost involved in makingregulatory filings and facilitates themanagement, analysis, disposition, and storageof the filings, both insurers and regulators benefitfrom the electronic communication that SERFFprovides. Earlier access to insurance productsenables consumers to also benefit from SERFF.


Jim Latteman - SERFF Marketing Manager, NAIC, 2301 McGee, Suite 800


Kansas City, MO 64108-2604 - (816) 783-8470 [email protected]

Joy Morrison - SERFF Business Analyst, NAIC, 2301 McGee, Suite 800 Kansas City, MO 64108-2604 - (816) 783-8471 [email protected]

Financial/Market Conduct Examinations

Exam Tracking System (ETS)

Operational since 1985, the ExaminationTracking System is designed to store financialand market conduct examination information ina centralized database, and to reduce duplicationof effort by allowing regulators to share theinformation from state to state. Informationstored into the database includes entitydemographics, exam type, examination dates,examiners involved and exam results. The ETSfacilitates the automated notification of exam calland examiner assignment information. Thesystem also tracks current and historical examdetails and generates Jumpstart and AnalysisReports. The information in the ETS isconfidential and available to insuranceregulators only.


Dustin Hunt NAIC, 2301 McGee, Suite 800 Kansas City, MO 64108-2604 - (816) 783-8266 [email protected]




Insurance Law Changes

RegCast

Receiving pending regulations in a timelyfashion plus providing a means to communicatewith the regulators directly responsible oraffected by the pending regulation is a key toincreasing regulatory efficiencies and reducedcosts. RegCast is a communication systemdesigned to distribute pending state regulationsand pending NAIC model laws in an electronicformat for review and feedback.

Using information provided by state insurancedepartments, RegCast tracks the progress ofproposed changes in state insurance regulationthroughout the rulemaking process. Initiated asa partnership between the NAIC and stateinsurance departments, the system uses theNAIC as a central receiving point for informationabout pending laws and regulations from states.The NAIC classifies the information into acommon format to ease and expedite search andreference capabilities, ties the pending lawchange or regulation to current NAIC models andto the state of origin and distributes theinformation to interested parties. Interestedparties can use RegCast to Communicate theirconcerns with regulatory officers.


John Bauer NAIC, 2301 McGee, Suite 800 Kansas City, MO 64108-2604 - (816) 783-8028 [email protected]


Solvency Surveillance

In addition to the 11 SR2000 initiatives, theNAIC is enhancing several other technologicalprojects in order to improve the financial datareporting system and enable regulators to readilyaccess financial information in order to maintaineffective solvency surveillance over an ever-changing industry.

I-SITE

I-SITE is an Internet browser-basedapplication that allows regulators to access theNAIC financial, market conduct and producerinformation. I-SITE replaces the NAIC CUIclient/server application in order to reducesystem and hard-disk requirements and providestate regulators with remote access to the NAICdatabase.

Internet Filing Project

The NAIC’s financial database is one of themost sophisticated in the world. The databaseallows insurance regulators to maintain effectivesolvency surveillance over the insuranceindustry. Currently more than 4,800 insurers filefinancial information electronically usingdiskettes. The Internet Filing Project uses astate-of-the-art Web site filing method developedto increase the speed and convenience of filingfinancial information. As of February 2000insurers are able to submit NAIC AnnualStatement filings for all business types.

Financial Database Re-Engineering(FDR) Project Requirements

The NAIC Financial Data RepositoryWorking Group and its parent group, theInformation Systems (G) Task Force, haveproposed adding the implementation of five

Financial Database Re-engineering (FDR)Project Requirements as a 12th SR 2000 initiative.The five FDR requirements are:

1. States should mandate that domiciliaryinsurers submit all financial filings requiredto be filed with the NAIC’s ExecutiveHeadquarters electronically (either throughthe Internet or on diskette) and in hard copyformat per NAIC guidelines.

2. States should mandate that domiciliaryinsurers submit all financial filings requiredto be filed with the NAIC’s ExecutiveHeadquarters by the filing deadlinesestablished by the Blanks Task Force and theRisk-Based Capital Task Force.

3. States should participate in the state filingchecklist initiative of the Standard ReportingFormats Working Group of the Blanks TaskForce, post their updated state filing checklistto the Web site and provide the URL to theNAIC by the date established by theStandard Reporting Formats Working Groupof the Blanks Task Force.

4. States should update the licensinginformation in the code list at least once perquarter.

5. In order to reduce the cost of regulatorycompliance, states should not requireinsurers to file separate diskettes with stateinsurance departments if that data isrequired to be filed with the NAIC’s ExecutiveHeadquarters.

Note: The NAIC Regulatory Re-engineering(G) Task Force surveyed NAIC members toassess the impact of adding the FDRrequirements as a 12th initiative to the SR2000initiatives. Of the 27 states that had responded


at the time this article was written, 20ascertained that the additional requirementwould not impede the state’s ability to receivethe SR 2000 Certificate of Compliance. Amongthose states that indicated the requirementswould be an impediment to SR2000 compliance,law changes necessary to mandate FDRrequirements were cited as the reason.

For more information on the FDRrequirements contact Eric Nordman,[email protected]; (816) 783-8232.

In light of the information gained from thesurvey, the NAIC’s Regulatory Re-engineering(G) Task Force adopted a recommendation thatadds the FDR requirements as a 12th initiativeeffective January 1, 2001.


100% SR2000 Com plian t Sta te sLast Update : 6/12/2000

State s 100% Com plian tAR, CO, DC, IN, IA, KS, MI, MN, MO, ND, OH, OK

UCAA States P artic ipatin gLast Update : 6/12/2000

States P artic ipatin gAL, AK, AZ, AR, CA, CO, DC, IN, IA, KS, KY, ME, MI, MN, MO, NE, NV, ND, OH, OR, P A,

SC, SD, TX, VT,WA, WV, WYStates Cu rren tly P aralle l P rocess in g Applicat ion s

OK


CDS State s P artic ipat in gLast Update : 6/12/2000

State s P artic ipatin g - All Com plain tsAZ, AR, CA, CO, FL, ID, IN, IL, IA, KS, KY, ME, MA, MS, MO, MT, NE, NJ , NM, NY, NC, ND,

OH, OK, OR, P A, SC, TX, VA, VT, WA, WI, WYState s P artic ipatin g - Me d Su pp On ly

AL, AK, CT, DE, DC, GA, GU, HI, LA, MD, MI, MN, NV, NH, P R, RI, TN, UT, WV

Con tin u in g Edu cation ReciprocityStates P artic ipatin g

Last Update : 6/12/2000

States P artic ipatin g AR, CO, CT, IL, IN, IA, KS, KY, ME, MI, MN, MO, NE, NC, ND, OH, OK, SD, UT, WI


ETS P artic ipatin g State sLast Update : 6/12/2000

States P artic ipatin g - Call Marke t & Fin an cial Exam sAL, AZ, AR, CO, CT, DE, FL, GA, IL, IA, KS, KY, LA, MD, MI, MN, MS, MO, ND, NE, NJ , NY,

OK, P A, RI, SC, SD, TN, TX, VT, VA, WI, WVState s P artic ipatin g - Call F in an cial Exam s On ly

AK, CA, DC, IN, MA, NH, OH, UT, WAStates P artic ipatin g - Ca ll Market Exam s On ly

NC

P DB States P artic ipat in gLast Update : 6/12/2000

States P artic ipatin gAZ, AR, CA, CO, CT, DC, FL, ID, IL, IN, IA, KS, MI, MN, MO, NC, ND, NE, NH, NJ ,

NY, OH, OK, P A, SD, TN, TX, VA, WA, WI, WY


P IN State s P artic ipat in gLast Update : 6/12/2000

States P artic ipatin gAR, CA, CT, DC, IA, KS, MI, MN, MO, NC, ND, OH, OK, OR, P A, SD, UT, VA, WY

State s Com ple tin g P rogram m in g or Test in gAL

States th at do n ot P rocess Appoin tm en tsAZ, CO, IL, IN, RI

RegCast State s P artic ipatin gLast Update : 5/16/2000

States P artic ipatin gAL, AK, AZ, AR, CO, CT, DC, GA, ID, IL, IN, IA, KS, KY, LA, ME, MI, MN, MS,

MT, NE, NV, NH, NJ , NM, NY, NC, ND, OH, OK, OR, P A, SD, TN, TX, UT, VT, WA,WI, WY


RIRS States P artic ipatin gLast Update : 5/16/2000

States P artic ipatin gAL, AK, AZ, AR, CA, CO, CT, DE, DC, FL, GA, HI, ID, IL, IN, IA, KS, KY, LA, ME,MD, MA, MI, MN, MS, MO, MT, NE, NV, NJ , NM, NY, NC, ND, OH, OK, OR, P A,

P R, RI, SC, SD, TN, TX, UT, VT, VA, WA, WV, WI, WY

SAD States P artic ipatin gLast Update : 6/12/2000

States P artic ipatin gAL, AK, AZ, AR, CA, CO, CT, DE, DC, FL, GA, HI, ID, IL, IN, IA, KS, KY, LA, ME,MD, MA, MI, MN, MS, MO, MT, NE, NV, NJ , NM, NY, NC, ND, OH, OK, OR, P A,

SC, TN, TX, UT, VI, VT, VA, WA, WV, WI, WY


SERFF States P artic ipat in g

Las t u pdate : 6/12/2000

States Licen sed an d in P rodu ctionAR, CA, CO, DC, IN, KS, KY, ME, MO, NC, NH, NY, ND, OH, OK, SD, TN, TX, UT, WA, WY

States Lice n sed On lyAL, CT, IA, LA, MD, MI, MN, NE, NJ , NM, WI

Un iform Tre atm e n t/Licen s in g Re ciprocityState s P artic ipation

Last Update : 5/16/2000

State s P artic ipatin gAK, AZ, AR, CA, CO, CT, DE, DC, ID, IL, IN, IA, KS, KY, LA, ME, MD, MI, MN, MS,

MO, MT, NE, NJ , NM, NC, ND, OH, OK, RI, TN, UT, VT, VA, WA, WI


StreamliningCommercial LinesInsuranceRegulation

By NAIC Staff

In 1998, the NAIC’s Commercial Lines—Property and Casualty Insurance (D) Committeeproduced a white paper on regulatory re-engineering of commercial lines insurance. Thepaper concluded that certain aspects ofcommercial lines rate and form regulation shouldbe changed to improve service in themarketplace. To accomplish this, it was agreedthat a new model law should be developed toreplace two current model rating laws—one “fileand use” and the other “prior approval”—andshould include standards and requirements forform filings. The new model law would mostimportantly, 1) recognize the effectiveness ofcompetition as a means to regulate rates; 2)provide flexibility as respects rate and form filingand/or approval authority, so that variations inthe need for regulation of various lines andclasses of insurance and types and sizes ofinsureds, can be accommodated; and 3)deregulate the largest risks.

The Commercial Lines Re-engineeringWorking Group was appointed to draft the new

model law along with a model regulationcontaining detailed implementation provisionsthat correspond to the model law. The WorkingGroup completed its task in December 1999 andpresented the Property and Casualty Rate andPolicy Form Model Law (#775) and its companionProperty and Casualty Rate and Policy FormModel Regulation to the Property and CasualtyInsurance (C) Committee at the NAIC SpringNational Meeting in March 2000.

As drafted, the new model law would providethe insurance commissioner with both theauthority and the charge to recognize theeffectiveness of competition as a means toregulate rates. It would also provide theauthority and the charge to recognize situationswhere the benefits of filing and prior approval offorms are outweighed by the burden and costthese review procedures place upon commerciallines insurers and insureds. The basicassumption used to develop the proposed modelis that rate filings will default to file and useand that policy form filings will default to priorapproval, unless exceptions are determined tobe appropriate.

The New Versus The Old

The new model law is different from the twomodels it replaces in the following ways:

• It regulates forms;• It establishes uniform non-renewal and

cancellation provisions;• It recommends the commissioner be granted

authority to monitor competition and reactwith appropriate changes to regulatoryprocesses through implementation ofregulations

• It establishes an exemption from rate andform requirements for large commercialpolicyholders called exempt commercialpolicyholders (ECPs).


It was anticipated that the determination ofwhat defines an ECP will vary between statesbased on a variety of economic factors;therefore, a key provision in the modelprovides the regulator with authority todefine an ECP and to change the definitionas necessary to accomplish the objective.

• It provides authority for regulators to waive,by regulation, some or all of the diligentsearch requirements related to placement ofECPs in the approved surplus lines market.

• It enables the degree of regulation to vary soas to fit the needs of each marketplace as theyevolve.

• It addresses inefficiencies for multistatecommercial policyholders by introducing alimited form of reciprocity for insurers sellingpolicies to risks operating in more than onestate;

• It promotes the use of the System forElectronic Rate and Form Filing (SERFF).

Consistency with the NAIC’s “Statementof Intent”

In spite of the fact that the Working Groupfinished developing the new model before theNAIC’s Statement of Intent was developed, theresults of their work are amazingly consistentwith the objectives espoused.

The Statement of Intent says:“Working with our governors and state

legislators, we will take steps to improve speedto market for insurance products. This willinclude development and implementation of asystem of deference to the state of domicile usingone-stop filing for products issued on a multistatebasis, where appropriate (Emphasis added)…We will take steps to shift the focus of statesaway from prior approval system whereappropriate.” (Emphasis added.)

The new model law contemplates severalpossible approaches to rate regulation, butdefaults to “file and use.” A prefatory draftingnote to the sections relating to rate regulationemphasizes the long held NAIC conclusion that“competition could be an effective regulator ofproperty/casualty insurance rates.” It furthernotes, “The NAIC has not taken a positionrespecting any particular line of insurance in anyparticular state,” and, “It is expected that eachstate will consider whether other approaches aremore appropriate for specific or all lines.” Thus,the rate filing part of the model is consistent withthe Statement of Intent.

The “default” of prior approval, selected forpolicy form filings, has elicited a considerableamount of industry commentary regarding aninconsistency with the Statement of Intent.However, it is important to remember that theNAIC did not have a general policy form modellaw prior to the inclusion of policy form standardsand filing requirements in this model. It wasnecessary; therefore, to first establish a baselineand then to make it flexible so that a lessrestrictive stance for the sophisticatedcommercial buyer could be implemented. Despiteits unpopularity among insurers, the priorapproval default reflects the reality of how theregulation of policy forms is accomplished in moststates today.

The model law does not require prior approvalfor policy forms sold to ECPs, policy formsdesigned for a unique individual risk or whenthe commissioner has adopted a regulation, forcommercial forms, that are more expansive innature. However, it recognizes the importanceof assuring, prior to use, that policy forms meetcertain minimum standards so that lesssophisticated commercial insurance buyersmaintain regulatory protection.


The Statement of Intent also says:“We will develop and implement state-based

uniform standards for policy form and rate filingsfor appropriate product lines. In pursuing thisevaluation, we will keep in mind the need forflexibility to allow local treatment of conditionsproduced by local markets. For lines that do notlend themselves to uniform standards, we arecommitted to reviewing market barriers forfurther efficiencies.”

Though the model law, as currently drafted,does not achieve uniformity, it does promote itin various ways:

• It promotes a file and use system for ratefilings and provides standard alternativelanguage for alternative systems;

• It promotes a prior approval system for policyform filings and provides standardalternative language for alternative systems;

• It contains standard cancellation and non-renewal provisions;

• Its drafting notes contain eight uniform policyform standards that the working groupconsidered;

• It promotes multistate reciprocity byrequiring the commissioner to adoptregulations to provide that a state’s formapproval requirements shall apply only toinsurance written for individual commercialrisks that are primarily located in the state.The provision addresses a major problemcited by insurers having to comply withvarious states’ insurance laws when writinga multistate risk.

The Property and Casualty Insurance (C)Committee received the revised model law andregulation at the Spring National Meeting.However, the committee was sensitive to theconcerns of the industry and recognized thatsome additional revisions may need to be madein order to be consistent with objectives espousedin the Statement of Intent. The committee has,therefore, referred the model law and modelregulation to the Speed to Market (EX) WorkingGroup so that any modifications the workinggroup considers necessary to achieve consistencymay be made.

For additional information contact:Eric [email protected]

Related publications/articles:

“White Paper on Regulatory Re-engineeringof Commercial Lines Insurance—June 23, 1998”

Journal of Insurance RegulationSpring 2000 Volume 18, Issue No. 3“Point/Counter Point: is the NAIC CommercialLines Deregulation Effort on Track?”

Both are available through NAIC Publicationswww.naic.org/1publications/816-783-8300


NEW

NEWNEW

NAIC Education & Training Departm entAugust through December 2000

Regulator-only Programs(in Kansas City, M O unless noted)

SOLVENCY

Financial Examiners Regulating for SolvencyAugust 7-10 October 23-26

H EALTH

The Regulation of Financial Regulation of M anaged CareM edicare Supplement Insurance OrganizationsAugust 17-18, Chicago November 13-14

G ENERALSurplus LinesOctober 2-4

INFORM ATION TECHN OLOGYAutomating the Examination Process

September 18-20

Public Programs

A NNUAL STATEM ENTAnnual Statement Changes Annual Statement Investment Schedules Seminarwith a Codification Update August 8, BaltimoreAugust 9-11, Baltimore

Health Annual Statement Preparation Workshop P&C Annual Statement Preparation Workshop Basic – August 21-24, Boston October 16-19, Charlotte

September 25-28, Atlanta Advanced – Nov. 28-Dec. 1, Baltimore

Life Annual Statement Preparation W orkshopOctober 30-November 2, Dallas

CURRENT ISSUES

CLE Seminar: The Clock is Running Training on Life Insurance Scams

September 9, Dallas October 12-13, W ashington, D.C.

For more information on any of the programs listed above or to receive a 2000 program catalog,contact the NAIC Education and Training Department at 816-460-7544 (fax),

816-783-8200 (phone) or etrainin@ naic.org (e-mail).The 2000 catalog is found on the Internet, www.naic.org, under “Products & Services.”

Documents

Financial State Regulation 2000 Gramm-Leach-Bliley Act of ...lobby.la.psu.edu/018_Personal_Medical_Privacy/... · Its role is that of “little sister” to the Journal of Insurance