UK/Europe
UK
The Insurance Act Receives Royal Assent 1
PRA Sets Out How the UKWill Implement Solvency II 2
EUROPE
Budget Cuts Could Impact EIOPA and the Delivery of Solvency II 3
Solvency II - EIOPA Publishes Final Reports on Equivalence of
Bermuda, Japan and Switzerland 3
US/Americas
US
AG 48 and the (Modest) Transformation of Life Reserve Financings 4
Insurance Regulators Work to Address Cyber Security Issues 7
The NAIC Exposes Two Cyber Security-Related Documents for Comment 9
The National Conference of Insurance Legislators Considers a
Proposed Model Act to Regulate Insurance Requirements for Transportation
Networking Companies (“TNCs”) and Transportation Network Drivers 9
Have you seen our Global Insurance Industry Year in Review? 11
MAYER BROWN | 1
UK/Europe
UK
The Insurance Act Receives Royal Assent
On February 12, 2015, the Insurance Bill, which was
introduced into Parliament on July 17, 2014,
received Royal Assent, and is now known as the
Insurance Act 2015 ("the Act"). The Act represents
the culmination of an eight year review of insurance
contract law by the Law Commission of England and
Wales and will largely affect non-consumer insurance
contracts. The purpose of the Act is to update the
statutory framework in the following areas:
Disclosure and misrepresentation in business
and other non-consumer insurance contracts:
The Act amends the duty on business
policyholders to disclose risk information to
insurers before entering into an insurance
contract, introducing a duty of “fair
presentation” of the risk. Provisions in the Act
define what both a business and an insurer
"know or ought to know" and what appropriate
enquiries should be made to obtain that
information. The knowledge of "senior
management" will be relevant and may extend
wider than board level. It also provides the
insurer with a number of proportionate
remedies when the duty is breached.
Insurance warranties and other terms: The Act
abolishes "basis of the contract" clauses (which
have the effect of converting pre-contractual
information supplied to insurers into
warranties). It also provides that, if there is a
breach of warranty, the insurer’s liability should
be suspended, rather than discharged, so that
insurance coverage is restored after a breach
has been remedied. The Act provides that
breach of a warranty or similar term should not
allow an insurer to refuse to pay a claim if the
insured shows that the breach was completely
irrelevant to the loss suffered. For example, if
the insured breached a contractual warranty to
maintain a sprinkler system in a property and
the property was then damaged by a storm, the
insured would likely be able to demonstrate that
the breached warranty had no effect on the loss
suffered.
Insurers’ remedies for fraudulent claims: The
Act sets out clear remedies for when a
policyholder submits a fraudulent claim. Insurers
will be able to terminate contracts and refuse to
pay claims relating to losses suffered after the
fraud but will remain liable for all legitimate
losses suffered before the fraud. If a fraud is
made by a member of a group insurance
contract, the Act will protect innocent group
members by carving out the fraudulent member
from the contract. The effect will be as if the
fraudulent member and the insurer entered into
a separate insurance contract, and the insurer
will be able to terminate the contract without
prejudicing the innocent group members.
Provisions that would have allowed a policyholder to
claim damages for unreasonable delay in paying a
claimwere originally included in the Law Commission’s
draft bill. However, despite such damages already
being available in Scotland, the provisions were
removed as they were considered too controversial
to suit the fast-track parliamentary procedure used
to instate the bill. The UK government has suggested
that such provisions may be reviewed and possibly
incorporated in later legislation.
The Act will come into force in August 2016. The full
text of the act is available here.
2 | Global Insurance & Regulatory Bulletin
UK
PRA Sets Out How the UK Will Implement Solvency II
On February 12, 2015, the Prudential Regulation
Authority (“PRA”) sent a letter, a copy of which is
available here, to life and general insurance firms
setting out the information relating to the UK
implementation of the Solvency II directive,
including a timetable for the PRA's activities in the
next few months.
The letter provides information on matters
including:
Matching adjustment pre-approval
applications. The PRA will provide individual
firm feedback on these applications on March
28, 2015 and general feedback to all firms by the
end of April 2015.
Own-funds transitional provisions. The entry
into force of Solvency II on January 18, 2015 is
the cut-off date for own-fund transitional
provisions. Any firm issuing capital instruments
between now and January 1, 2016 must ensure
that the instrument is Solvency II-compliant so
that it is eligible for transitional treatment.
Regulatory reporting. The PRA invites firms to
send it partial or full XBRL files by April 2, 2015
for planning and testing purposes. XBRL is a
standard format for describing financial data,
and facilitate the creation, distribution and reuse
of business reports.
Solvency II approvals. The PRA expects firms
that are planning to submit applications for
multiple Solvency II approvals to consider the
dependencies between these applications and
prepare contingency plans in case approval is
not obtained for all applications. Firms should
also devise an overall plan setting out the
proposals that they are planning to submit for
Day 1 decision, identifying the dependencies
between these approvals.
Internal model. The internal model preapplication
period ends on March 31, 2015. The
PRA describes the work of the commitment
panel that will assess whether firms are likely to
make a credible model application after April 1,
2015. The PRA has already identified areas
where some firms are not meeting the standards
expected, including contingency plans, expert
judgment documentation and validation. The
Appendix to the letter provides more
information on these areas. On March 9, 2015,
the PRA sent a letter, a copy of which is available
here, to firms regarding internal model
approvals and a matching adjustment update. As
anticipated, firms will be able to start formal
submissions of applications for approval with
effect from April 1, 2015. We expect more detail
to be included in a PRA Policy Statement to be
published towards the end of March.
Standard formula. In the second quarter of
2015, PRA supervisors will contact firms that
took part in a pilot exercise concerning standard
formula appropriateness where interventions
are considered necessary. The PRA will provide
general guidance to all firms by the second
quarter of 2015 if its work highlights thematic
issues.
Policy documents. The PRA intends to publish a
policy statement on Solvency II on March 20,
2015. In the timetable, it states that it intends to
publish a consultation paper in the first quarter
of 2015 on volatility adjustment (subject to HM
Treasury's decision) and a consultation paper
which has since been released on February 19
MAYER BROWN | 3
and considers the guidelines produced by the
EIOPA.
Data collection exercise. The PRA will issue
templates and guidance for the 2015 data
collection exercise. The guidelines were
subsequently issued on March 2, 2015.
EUROPE
Budget Cuts Could Impact EIOPA and the Delivery of Solvency II
In February 2015, Carlos Montalvo, the head of
the European body charged with developing
Solvency II, warned that recent budget cuts would
have an impact on how Solvency II would be
implemented in 2016. EIOPA's 2015 budget was
reduced by 7.6% compared to 2014, equivalent to
a reduction of €1.7 million.
In a press release, EIOPA stated that as a result of
the budget cuts, EIOPA would look to relocate
human resources and rationalize funds. The press
release also stated that Solvency II will remain
EIOPA's highest priority in 2015. However, the
budget cut will affect the implementation of
Solvency II with the training program for
supervisors being reduced by 20% and the
production of the IT supervisory toolkit related to
XBRL reporting being cancelled. In addition, a
number of work streams, including those in the
areas of financial stability and consumer
protection will be “deprioritized.”
EUROPE
Solvency II - EIOPA Publishes Final Reports on Equivalence of
Bermuda, Japan and Switzerland
By way of background, Solvency II provides a
mechanism for the European Commission to treat as
equivalent a third country’s solvency and prudential
regulatory regime to reflect the fact that the
insurance industry is a global marketplace and the
increasing cross-border nature of group structures
and transactions. Equivalence findings can only be
given by the European Commission once it is
satisfied, having taken EIOPA’s reports and
recommendations into account, that policyholders
are adequately protected across jurisdictions.
In October 2011, EIOPA first provided the European
Commission with three draft reports on equivalence
in respect of the Bermudian, Japanese and Swiss
regimes. Given the delay to the implementation
timetable of Solvency II and the ongoing
consultations, it came as no surprise that EIOPA was
asked in February 2014 to update and refresh its
analysis for these three countries. Whilst the
Japanese regime’s assessment extends only to
equivalence in respect of Article 172 (reinsurance
supervision), the Swiss and Bermudian regimes are
assessed in respect of Articles 172, 227 (group
solvency calculation) and 260 (group supervision).
These latest reports from EIOPA were published
on March 11, 2015 and are available here. In
general, the EIOPA reports recommend, subject to
certain caveats, equivalence findings for Japan,
Switzerland, and Bermuda (for certain classes of
Bermuda insurers). It should be noted, however,
that the final decision on equivalence rests with
the European Commission and the exact timing of
such decision is not yet known.
4 | Global Insurance & Regulatory Bulletin
US/Americas
US
AG 48 and the (Modest) Transformation of Life Reserve Financings
After three full years of regulators compiling data,
reading legal documents, studying actuarial
models and consulting with outside advisors
related to the life insurance industry’s use of
captive reinsurers for so-called AXXX and XXX
reserve financing transactions, year-end 2014 was
punctuated on November 17, 2014, when the
Principle-Based Reserving Implementation (EX)
Task Force of the NAIC (the “PBR Task Force”)
adopted a draft of Actuarial Guideline 48 (dated
November 14, 2014, “AG 48”), which defines the
rules to be followed for new life reserve financing
transactions after January 1, 2015 (subject to
certain grandfathering rules described below).
These rules were finally adopted by the Executive
Committee and Plenary of the NAIC on December
16, 2014 and are in the process of being
implemented. While the version of AG 48 that was
so adopted is clearly still a work in progress, it
should give regulators, industry participants and
financing parties more clarity for financings in the
life sector for 2015 than they have seen at any
time since these structures came under intense
scrutiny in 2011.
For the first time in over three years, the life
insurance industry was reassured by prominent
members of the NAIC that the organization’s
three-year, multi-faceted project related to the
use of life insurer-owned captives and special
purpose vehicles would not result in any
moratorium or other draconian prohibitions or
restrictions on structured finance as a tool for
reserve financing for life insurance companies.
Instead, during the fourth quarter of 2014,
insurance regulators tasked with the project finally
overcame their differences and arrived at a long
awaited compromise now known as Actuarial
Guideline 48. The genesis of AG 48 and its pending
implementation were, and will continue to be,
guided by the reports and ongoing advice of
Rector & Associates, Inc. (“Rector”), an outside
consulting firm engaged by the NAIC’s PBR Task
Force to study the propriety of reserve financing.
AG 48 and the Rector reports provide a framework
for reserve financings that is intended to: (i)
permit life companies to continue to pursue
capital relief opportunities through third party
financings; (ii) establish some uniformity among
jurisdictions and regulators for the review and
approval of such financings; (iii) facilitate
transparency regarding such financings and (iv)
add enhanced policyholder protection to such
financings by way of increased liquidity and
solvency margins.
Ever since the NAIC first undertook its
investigation into certain types of life insurerowned
captive reserve financings in 2012, the
inevitability of a new regulatory regime was widely
accepted by the life insurance industry.
Uncertainties and speculation about the exact
nature of that new regime were widespread
during 2014 (as reflected in the anemic deal flow).
One of the most prevalent concerns for the life
sector during the negotiation of AG 48 was
retroactivity. Given the time, resource
commitment and expense that are required to
implement a reserve financing, life insurers were
reluctant to propose new transactions that could
potentially need to be unwound within the next 12
months. At a special meeting of the PBR Task
Force in November of 2014, after a heated debate,
the issue of retroactivity was finally laid to rest.
MAYER BROWN | 5
The substantive provisions of AG 48 do not and
will not apply to any life insurance policies that
were included in a reserve financing as of
December 31, 2014. This final rule (the
“Grandfathering Test”) is a bright line test that
applies to all such reinsured policies. The adoption
of the Grandfathering Test was a significant victory
for the life industry, since the proposed alternative
would have required immediate compliance with
AG 48 for any transaction that is amended in any
way subsequent to January 1, 2015, effective as of
the date of such amendment. Due to the
unavoidability of amendments to structured
reinsurance deals, this alternative would have
resulted in constructive retroactivity. One aspect
of the Grandfathering Test that interested parties
need to keep in mind is that amendments to
existing transactions that add new business to
blocks that were previously financed would
jeopardize eligibility for grandfathering.
Currently, AG 48 only applies to financing
arrangements involving term life insurance
business subject to Regulation XXX (Regulation 147
in New York) and universal life insurance business
subject to Actuarial Guideline 38 (more commonly
known as Regulation AXXX or AG 38). While these
are the business lines that have been identified by
the life insurance industry as having the most selfevident
reserve redundancies and are, therefore,
currently the most commonly financed lines, there
are other lines of business outside of the scope of
AG 48 for which life insurers could demonstrate
reserve redundancies and/or benefit from outside
financing. For example, so-called embedded value
financings, which provide capital relief for the
surplus strain associated with issuing and selling
life insurance products, appear to be very
interesting to the industry at the moment. One
cautionary note is that regulators have indicated
that they intend to explore expanding the
applicability of AG 48 to other product lines,
specifically annuities and long-term care insurance
policies.
In addition to the foregoing, AG 48 provides a brief
list of exemptions from its application. These
include (i) transactions related to certain types of
yearly renewable term reinsurance, (ii) certain
reinsurance cessions to appropriately licensed,
accredited or certified reinsurers and (iii)
transactions that are not intended to be covered,
are covered only technically and need not be
covered for the protection of policyholders. The
foregoing exemptions are subject to the approval
of a life insurance company’s domiciliary regulator
(after consultation with an appropriate committee
within the NAIC – currently the Financial Analysis
Working Group or “FAWG”). We understand from
discussions at PBR Task Force meetings that the
intent of these exemptions, particularly that
described in (iii) above, is to provide a mechanism
to shield “conventional” reinsurance transactions
involving “professional” reinsurers from the
application of the rules. Nevertheless, the
applicability, practical mechanics and scope of AG
48 exemptions continues to stimulate debate
among regulators, insurers and potential
financiers.
Under AG 48, the risks under a block of covered
businesses are divided into two layers: the
“Primary Security” layer, which effectively replaces
what would have been called the economic
reserve layer in a traditional reserve financing, and
the “Other Security” layer, which likewise replaces
the excess reserve layer. The threshold dividing
the two layers is now known as the “Required
Level of Primary Security,” which must be
determined in accordance with an actuarial
valuation model provided for in AG 48. This model
is a modified version of the NAIC’s “VM-20”
standard, which was originally negotiated among
regulators and interested parties in connection
with efforts to move the current statutory
accounting regime for life insurers from a rulesbased
to a principles-based reserving system. In
the minds of many regulators, moving the life
industry to a principles-based reserving system
6 | Global Insurance & Regulatory Bulletin
would negate any need for reserve financing;
therefore, it was only logical to use the existing
“principles-based” valuation model to set the
threshold. However, early reports from insurers
indicate that the Required Level of Primary
Security under AG 48 for most books of business is
substantially higher than a truly principles-based
economic reserve determination would generate.
Many observers of the life insurance industry and
its regulation expected a main focus of any new
rules and regulations related to reserve financing
to be on the nature and availability of assets used
as collateral for excess reserves. Instead, AG 48
reinforces policyholder protections by regulating
assets backing the Primary Security layer. Pursuant
to AG 48, assets that qualify as Primary Security,
i.e., that must be used as collateral for at least that
portion of a company’s reserves up to the
Required Level of Primary Security, include only:
(1) cash and (2) securities listed by the Securities
Valuation Office (“SVO”) of the NAIC (including
securities deemed exempt from filing under the
NAIC’s Purposes and Procedures Manual) that are
otherwise admitted assets under relevant state
law, but not including: letters of credit (whether
clean or conditional), synthetic letters of credit,
contingent notes, credit-linked notes or other
similar securities that operate in a manner similar
to a letter of credit. Clearly, Rector and the
regulators identified those financial instruments
that were being used chiefly as collateral for
excess reserves and expressly disqualified them as
collateral for Primary Security. One issue that still
requires clarification is the distinction between
“securities listed by the SVO” (described above)
and bespoke assets that are privately rated by the
SVO at the request of an issuer or investor. The
intent of AG 48 appears to be to exclude the latter
type of assets; however, the SVO should be
publishing guidance on this point in the near
future.
In addition to cash and SVO listed securities, AG 48
permits financing Primary Security with: (3)
commercial loans in good standing (CM3 quality or
higher), (4) policy loans and (5) derivatives
acquired in the normal course and used to support
and hedge liabilities pertaining to the actual risks
ceded under the applicable reinsurance
agreement; provided that such additional asset
classes (3, 4 and 5) may only be used where
collateral for Primary Security is achieved through
either a funds-withheld or modified-coinsurance
arrangement, i.e., where such assets are held in
the general account of the sponsor life insurance
company. With respect to collateral supporting
Other Security, AG 48 permits any assets, including
assets that could be used to support Primary
Security, that are acceptable to the sponsor life
insurer's domiciliary regulator. Therefore, AG 48
could be seen as an affirmation of the status quo
as it relates to financing excess reserves, except
that the cutoff for what defines such excess has
been clearly defined (and likely increased). There
were lively debates among regulators and
interested parties over the appropriate
consequences for any insurer that violates the
provisions of AG 48. Ultimately, it was agreed that
if a ceding company engages in a transaction
subject to AG 48, but fails to meet the collateral
requirements of AG 48, the company must file a
qualified actuarial opinion with its statutory
financial statements.
One of the initial allegations made in opposition to
life insurance reserve financing was that these
were hidden transactions consummated without
any meaningful disclosure. In response, the NAIC
adopted a new Supplemental XXX/AXXX
Reinsurance Exhibit (Parts 1, 2 and 3), which must
be filed by each regulated U.S. life insurance
company with its statutory Annual Statement
beginning in April of 2015. This exhibit requires
detailed disclosures of nearly all material aspects
of reserve financing transactions subject to AG 48,
MAYER BROWN | 7
including details about the nature of assets held as
Primary Security.
In connection with the adoption of AG 48, the PBR
Task Force charged another body within the NAIC,
the Life Risk-Based Capital Working Group, with
two other related tasks. The first was to develop
an appropriate risk-based capital (“RBC”) cushion
for assuming reinsurers that do not file an RBC
report using the NAIC RBC formula and
instructions (which most captive and other
reinsurers that are used for reserve financings do
not); and the second was to develop appropriate
asset charges for the forms of “Other Security”
used by insurers under AG 48, which charges
should then be considered for incorporation into
such RBC cushion. Essentially, regulators are
seeking to bolster policyholder protections by
discounting the value of certain assets that may be
employed as Other Security. Guidelines for RBC
cushions and asset charges are expected to be
finalized by April of 2015. From a practical
standpoint, most transactions that pre-dated AG
48 already included some negotiated buffer
between the economic reserve level and the
excess reserve financing threshold, i.e., excess
assets posted by a sponsor insurer for the
protection of its creditors.
Many insurance regulators who previously
opposed any form of reserve financing believed
that such transactions were an impediment to the
implementation of a much needed principlesbased
reserve system for life insurers (“PBR”),
which would replace the antiquated rules-based
system. If reserves were truly based on
fundamental actuarial principles, applied on a
case-by-case, product-by-product and companyby-
company basis, then there should be no
excesses to finance. Sometime in 2014, the
attitudes of some of these regulators shifted, and
they began to see the regulation of reserve
financing (e.g., AG 48) as a bridge to the future –
an interim step toward final implementation of
PBR. That is one of the reasons that we saw the
process guided by the PBR Task Force, and the
Required Level of Primary Security based on a PBR
valuation model (VM-20). In the event that PBR is
finally adopted and implemented, an interesting
question is whether that will actually eliminate the
need for life reinsurance finance transactions.
While some regulators would say “absolutely,”
most industry participants would disagree. It is
highly unlikely that regulators would ever permit a
strictly principles-based system, without some
ancillary rules of general application. Therefore,
the era of structured life insurance finance is
probably far from its sunset.
US
Insurance Regulators Work to Address Cyber Security Issues
As data breaches and their consequences have
become increasingly common and gained public
attention, cyber security has become a significant
issue for both the insurance industry and insurance
regulators. Although the recent coverage of the
massive cyber security breach at Anthem, Inc.
(“Anthem”), which affected as many as 80 million of
its customers whose account information was
stolen, put a particular spotlight on cyber security
issues in the insurance sector, cyber security has
been a growing concern for insurance regulators for
the past few years, prompting NAIC discussion that
led to the formation of a Cybersecurity (EX) Task
Force (“CTF”) in November 2014. The CTF,
established to help coordinate insurance issues
related to cyber security, is charged with monitoring
developments in the cyber security area and with
making recommendations to the NAIC regarding:
8 | Global Insurance & Regulatory Bulletin
(i) the protection of information housed in insurance
departments and the NAIC; (ii) the protection of
consumer information collected by insurers; and
(iii) collecting information on cyber-liability policies
being issued in the marketplace.
The New York Department of Financial Services
(“DFS”) has also taken a leading role in addressing
the cyber security issue with a promise to beef up its
examination of insurers. This focus by DFS on the
insurance industry is a natural outgrowth of its
December 2014 bulletin to all New York-chartered or
licensed banking institutions regarding its new cyber
security examination process. Fearing an
“Armageddon-type cyber event” in the financial
sector in the near future, the DFS Superintendent
Benjamin Lawsky, speaking at Columbia Law School
in February, indicated that cyber security will likely
be the most important issue that DFS will face in
2015. In the wake of the Anthem breach, DFS
released a report entitled “Report on Cyber Security
in the Insurance Sector,” on February 8, 2015, and
announced that it plans to “integrate regular,
targeted assessments of cyber security preparedness
at insurance companies as part of [its] examination
process.”
The report summarizes the results of a survey DFS
conducted during 2013 and 2014 “to obtain a
horizontal perspective of the insurance industry’s
efforts to prevent cyber crime, protect consumers
and clients in the event of a breach, and ensure the
safety and soundness of their organizations.” In the
report, DFS warned the insurance industry that
“[r]ecent cyber security breaches should serve as a
stern wake up call for insurers and other financial
institutions to strengthen their cyber defenses.”
Of the 43 insurers surveyed, 21 were health insurers,
12 were property and casualty insurers and 10 were
life insurers. The combined assets of the 43 insurers
surveyed totaled approximately $3.2 trillion. The
topics of the survey included the following:
the insurer’s information security framework;
the use and frequency of penetration testing
and results;
the budget and costs associated with cyber
security;
corporate governance around cyber security;
the frequency, nature, cost of and response to
cyber security breaches; and
the insurer’s future plans on cyber security.
Of those surveyed, 58% reported that they
experienced no cyber security breaches in the three
years preceding the survey (excluding failed
attempts) while 35% reported experiencing between
one and five breaches, 2% reported experiencing
between six and ten, and 5% reported experiencing
more than ten breaches.
The DFS report also reflects discussions DFS has had
with a cross-section of insurers and cyber security
experts as well as its review of insurers’ statutorily
required enterprise risk management (“ERM”)
reports filed with the NY DFS for the first time in
2014.
According to the DFS report, “[o]nly one ERM report
filed by the surveyed insurers provided in-depth
identification and analysis of cyber security risks
specific to the particular entity and discussed
specific steps and ongoing projects to mitigate those
risks.” In most ERM reports filed by surveyed
insurers, cyber security was not specifically
identified or discussed as a stand-alone material risk
and, to the extent it was addressed, was discussed
only in “broad terms as a subset of material
operational risk.”
In a February 5, 2015 speech, Superintendent
Lawsky highlighted a number of areas of concern:
A company’s cyber security is only as strong as
the cyber security of its weakest vendor.
Accordingly, companies need to perform
adequate due diligence on their vendors’ cyber
MAYER BROWN | 9
security and obtain appropriate representations
and warranties in their vendor contracts.
Multi-factor authentication, e.g., a password
plus a security token, should always be required
for systems access. Allowing access by entering a
single password is poor cyber security hygiene.
Security breaches are almost inevitable, so
companies need to put in place mitigators for
when a breach occurs, such as strong encryption
and restrictions on download, so hackers will be
prevented from capturing sensitive data even if
they penetrate the company’s firewall.
The property and casualty insurance industry
needs to focus on providing robust cyber
security insurance coverage.
We will continue to monitor events in this rapidly
developing area.
US
The NAIC Exposes Two Cyber Security-Related Documents for
Comment
On March 12, 2015, the NAIC exposed for
comment two draft documents relating to cyber
security.
The first draft document (available here),
“Principles for Effective Cybersecurity Insurance
Regulatory Guidance” (the “draft cybersecurity
guidance”), was developed by the CTF to assist
insurance regulators in providing guidance to the
insurance industry in its efforts to strengthen data
security and infrastructure. Derived from the work
of the Securities Industry and Financial Markets
Association, the 18 guiding principles in the draft
cybersecurity guidance seek to help regulators
“identify uniform standards, promote
accountability, and provide access to essential
information.”
The second draft document (available here), the
“Cybersecurity Insurance Coverage Supplement,”
is a supplement to the annual statutory statement
to be filed by insurers that write cyber security
coverage, either on a standalone basis or as part of
a commercial multiperil package policy. The draft
supplement is being considered by the NAIC
Property and Casualty Insurance (C) Committee.
The two exposure drafts were open for comment
from interested parties and industry
representatives until March 23rd, to facilitate
discussions at the NAIC’s Spring National Meeting
in Phoenix.
US
The National Conference of Insurance Legislators Considers a
Proposed Model Act to Regulate Insurance Requirements for
Transportation Networking Companies (“TNCs”) and Transportation
Network Drivers
TNC insurance coverage issues have attracted
significant interest from legislators and regulators
around the country in light of the increasing
popularity of TNCs (also called “commercial ridesharing
companies”), which use an online
application or platform developed and administered
10 | Global Insurance & Regulatory Bulletin
by the TNC (the “TNC app”) to match passengers
with participating drivers who use their personal
vehicle (“TNC drivers”) to transport passengers for a
fee. Legislators’ and regulators’ concerns have been
heightened by a number of high-profile instances of
accidents involving TNC drivers.
The Property-Casualty Insurance Committee of the
National Conference of Insurance Legislators
(“NCOIL”) met on March 1, 2015 to discuss a
“Proposed Model Act to Regulate Insurance
Requirements for Transportation Network
Companies and Transportation Network Drivers”
(the “proposed model act”), relating to insurance
coverage for TNCs, sponsored by Ohio state
representative Michael Stinziano (D-Columbus).
The focus of the discussion centered on whether a
personal auto policy of the TNC driver would provide
any coverage during “Period One” – the time period
during which a TNC app is activated, but the TNC
driver has not yet been matched with a passenger.
The proposed model act would “preempt any local
ordinance, resolution, or other law adopted to
impose, require, or otherwise regulate insurance
requirements for transportation network companies
and the provision of transportation network
company services.”
The proposed model act would require TNC
insurance, defined as “an insurance policy that
specifically covers a driver’s use of a vehicle in
connection with a transportation network
company’s online-enabled application or platform,”
during the period of time that TNC services are being
provided, which would begin when a TNC driver logs
onto the TNC app and is waiting to be matched with
a passenger, and would end when the TNC driver
logs off the TNC app or when the passenger has
completely exited the vehicle, whichever is later.
The proposed model act would require TNC
insurance to provide: (i) primary liability coverage;
(ii) uninsured and underinsured motorist coverage;
(iii) personal injury protection; and (iv) collision
physical damage coverage and comprehensive
physical damage coverage. The TNC insurance
requirements could be met by the TNC, the TNC
driver, or both.
The proposed model act would also require TNCs to
provide certain disclosures and notices to TNC
drivers and the owner of the personal vehicle being
used by a TNC driver.
In addition, the proposed model act would specify
that a personal auto insurance policy is not required
to provide coverage during any period of time that
TNC services are being provided. However, an
insurer would be permitted to include provisions in a
personal auto liability insurance policy (or in a policy
amendment or endorsement) that expressly provide
for coverage during all or a specified portion of the
period of time that TNC services are being provided.
A fuller discussion of the proposed model act is
planned for NCOIL’s July Summer Meeting scheduled
for July 16 to 19 in Indianapolis. A draft of the
proposed model act is available here, and interested
parties may provide written comments in advance of
the meeting, or provide oral comments at the
meeting.
MAYER BROWN | 11
Have you seen our Global Insurance Industry Year in Review?
In our Global Insurance Industry 2014 Year in Review, we discuss developments and trends in insurance
industry transactions in the past year in the United States, Europe, Asia and Latin America, with particular
focus on mergers and acquisitions, corporate finance, the insurance-linked securities and convergence
markets, and certain tax and regulatory developments in the industry. For Mayer Brown and our global
insurance transactional practice, 2014 was a banner year thanks to the continued support of our clients. We
were privileged to work on many of the most interesting and innovative transactions in the industry, including
10 completed insurance M&A deals, as well as underwritten offerings of equity, hybrid and debt securities,
and numerous corporate financings, raising over $12 billion of capital for the industry. In addition, we acted in
2014 on more than 21 completed catastrophe bond offerings and sidecar transactions raising more than $5.5
billion of risk capital.
A request for the 2014 Year in Review can be made here.
If you have any questions in connection with anything in this Bulletin, please do not hesitate to get in touch
with your usual Mayer Brown contact or one of the contacts referred to below.
Co-Editor
Colin Scagell
Partner
+44 20 3130 3315
[email protected]
Co-Editor
Lawrence Hamilton
Partner
+1 312 701 7055
[email protected]
Co-Editor
David Alberts
Partner
+1 212 506 2611
[email protected]
Managing Editor
Nicole Zayac
Counsel
+1 650 331 2066
[email protected]
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