The business and regulatory environment for insurance is constantly changing, and part of our client service platform involves staying on top of those changes. One way we do this is by attending the periodic meetings of the industry-regulator-consumer liaison committees sponsored by the Wisconsin Office of the Commissioner of Insurance (OCI) for life, health, and property and casualty insurance. The following is our report on the discussion from the most recent meeting of the Property and Casualty Insurance Advisory Council.
Commissioner Ted Nickel appointed J.P. Wieske as Deputy Commissioner last summer. Other changes at OCI include the appointment of Elizabeth Hizmi to Mr. Wieske's former position as Legislative Liaison and Public Information Officer; Jeff Grothman as a policy advisor; Rebecca Rebholz as the director of the market regulation bureau; and Christina Keeley as chief of the property and casualty section of that bureau.
National Association of Insurance Commissioners (NAIC)
Priorities of NAIC President. J.P. Wieske noted that Commissioner Nickel has been traveling a lot since becoming President of the NAIC this year, and that he was in Washington, D.C. discussing health insurance issues the day of the Council meeting. Unlike his predecessors, his main priority as President will be to clean up and finish the many projects already under way at the NAIC, so his tenure will be more "blocking and tackling" than big initiatives. But he also believes that the NAIC must take bold action when needed (so he sent all his fellow commissioners a pair of brightly colored socks as a reminder). In addition, he is subtly focused on governance issues, making certain that processes are fair and that committee appointments reflect a broader base of participants.
In terms of specifics, Mr. Wieske noted that:
- It is clear that big data and cybersecurity issues are here to stay, so the Commissioner would like to see a major ("letter") committee on this subject.
- The Market Actions Working Group (MAWG) and other groups are trying to regularize and avoid redundant market conduct exams, including through a certification program for regulators.
- The NAIC should look closer at the unclaimed life insurance benefits (death master file, or DMF) issue. OCI signed on to some early settlements at the request of the insurers, but has become concerned about the fairness of the process.
- The Federal Insurance Office (FIO) doesn't have a lot of value, especially since it has now put an agreement with the European Union in place, and its functions could be handled elsewhere in the Treasury Department.
- Cross border sales of insurance should not put state regulation at risk, as the focus is really on speed-to-market, and other state-based improvements (such as through interstate compacts) that will avoid top-down federal regulation.
Cybersecurity. Roger Frings, an OCI Policy Initiatives Advisor, reported that this NAIC task force's second draft of an Insurance Data Security Model Law raised several issues, including uniformity among the states, the harm trigger in the definition of a data breach, the definition of personal information, and the role of third party service providers. The task force is working on a third draft, and will continue its bimonthly calls in order to complete its work by the NAIC meeting in April.
In response to questions, J.P. Wieske said that comments could still be submitted to the task force, and that there should also be a comment period when the model goes to the task force's parent committee; that making the model an accreditation standard was not on the table, though there may be elements that all states will want to use as a standard down the road, depending on what regulators find in examinations; and that the rigorous New York approach is not mainstream, and probably will not be followed by other states (though the NAIC hopes to keep state variations to a minimum, but if the model becomes an accreditation standard it will be at the request of the industry).
Big Data. J.P. Wieske reiterated the need for a separate committee to obtain a full policy understanding of this subject, which includes issues around how deeply you slice the market with different data points, with the possible result that the spreading of risk that is the essence of insurance no longer exists, because each insured is rated separately; the need for consistency in the use of data to avoid unfair discrimination; ensuring that use of data still results in a premium that is based on risk; and how regulators might use big data (though they have traditionally not had access to big data or the technology to use it). Questions included:
- Whether the consumer owns his or her own data, which Mr. Wieske said needs to develop over time; however, the hope is that it will be portable from company to company if that is practical (e.g., if it can be transferred safely).
- Whether the usual prohibition against unfairly discriminatory rates would prevent use of data showing a very small change in risk; he noted that the purpose of using data is to get to a reasonable estimate of risk.
- Whether, even though the granularity of data is important, most of the premium is determined by basic risk factors; Mr. Wieske said how risk is pooled may be something states will look at, though it is not necessarily an OCI concern.
Corporate Governance Annual Disclosure. Cari Lee, head of OCI's Division of Regulation and Enforcement, reported on this NAIC model, filling in for Richard Wicka, OCI’s Deputy Chief Legal Counsel, who will be out until early March. She noted that states will need to adopt the model so initial disclosures are due June 1, 2020; that its purpose is to provide annual disclosures that will align with international standards; and that there is no small insurer exemption. The model requires a confidential annual filing at the group level on corporate governance (e.g., director qualifications, selection, and independence; and the board's role in evaluating and compensating senior management, strategic planning, reinsurance, compliance, and the like). To avoid duplication, companies can refer to other filings, such as the Own Risk and Solvency Assessment (ORSA) and federal securities filings.
As soon as possible after the NAIC adopts the model act this spring, OCI will seek legislative adoption as part of its technical bill. OCI aims to adopt the model regulation so that it is in place by 2020. J.P. Wieske noted that OCI does not have a lot of discretion to change the models.
In response to a comment, Cari Lee agreed that the model is a reporting requirement, not a mandate; she noted that financial exams are changing to be more of a risk assessment, and that will include feedback to the company on its disclosures. J.P. Wieske added that OCI will let an insurer know if it sees a serious deficiency. In response to a question, Mr. Wieske said that OCI is working on ways to handle the additional work involved in reviewing the disclosures.
Wisconsin Legislative Session
OCI Technical Bill. Elizabeth Hizmi noted that OCI is focused on its technical bill, which, in addition to the corporate governance model, will include provisions on agent modernization; elimination of obsolete disclosure reports (OCI is looking for feedback in this area); rules; network adequacy (to avoid application of federal law); and DMF transparency (J.P. Wieske said that some legislators are interested in the model law adopted by the National Conference of Insurance Legislators (NCOIL) on unclaimed life insurance benefits).
Privacy Notice. Cari Lee noted that OCI issued an emergency rule to amend privacy notice requirements to conform to federal law. J.P. Wieske said the intent is to eliminate annual notices that are not read by consumers anyway, and that OCI plans to move as quickly as possible.
Budget Address. The Governor's budget address is set for February 8. OCI's budget request included elimination of funding for the Local Government Property Insurance Fund. In response to a question, J.P. Wieske noted that the Fund is down to 150 or so members, and that there is a run-off plan.
Social Media. Elizabeth Hizmi reported that OCI has launched a Twitter account, and is really pushing this approach as a way to keep up with OCI on a daily basis.
J.P. Wieske said he thought OCI would have more to report when he put this on the agenda, but they don't know much yet. He noted the President's executive order requiring repeal of two federal regulations for every one that is promulgated. He also said the NAIC is pushing the idea that insurers should not be regulated like banks (and they have gotten a pretty good response from the administration), and that states should have flexibility in health insurance reform (he said he would be following the Commissioner to Washington for discussions on the subject). The Council chair noted that tax reform may affect insurers, so the industry should keep an eye on that.
Wisconsin Insurance Plan
Tim Cornelius, an OCI attorney, reported that the Governor approved the statement of scope for changes in § Ins 4.10 of the Wisconsin Administrative Code, which governs the Wisconsin Insurance Plan, Wisconsin's property insurer of last resort. OCI is drafting the rule changes, which include removal of obsolete coverages, an increase in limits from $200,000 to $350,000, and a reduction in the size of the governing board (OCI is looking for input on this point). Kate Manna, the manager of the plan, noted that this will be a busy year as the plan continues its conversion to software that is more consumer friendly.
Volunteer Drivers. Elizabeth Hizmi noted that there is a new consumer publication on coverage for drivers who are volunteering, and a list of insurers that offer the coverage. The publication should fix confusion over standard policy language as it relates to the "Uber law."
Workers Comp Opt-Out. The Council chair asked if OCI has any thoughts on this idea, which would allow employers to opt out of traditional workers compensation and use an employee welfare benefit plan operated under the Employee Retirement Income Security Act of 1974 (ERISA) instead. J.P. Wieske said OCI is interested in hearing from the industry, understanding that it is not unified on this issue. He knows the legislature and the Department of Workforce Development (DWD) are generally protective of Wisconsin's workers comp system, but that there are cost issues. While DWD and OCI will have input, the Governor will ultimately decide on what position the administration will take.