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:
Jaclyn de Medicci is the new chief of the Property and Casualty Insurance Section in the Bureau of Market Regulation. She has been an examiner in the section for about 3 years.
Deputy Commissioner Dan Schwartzer gave an overview of the budget just released by the Governor:
- Workers compensation changes are not as extensive as some anticipated, but administration of the program will move from the Department of Workforce Development to OCI along with about 68 employees; however, workers compensation administrative law judges (ALJs) will go to the Division of Hearings and Appeals in the Department of Administration.
- This is part of the budget effort to reduce the size of government and make it more efficient. OCI is excited about the opportunities, including to modernize and increase efficiency, but plans no major changes (though further legislation may make such changes).
- J.P. Wieske, OCI’s Legislative Liaison and Public Information Officer, noted that this sort of effort to create one-stop shops (e.g., filings and appeals) pervades the budget. In response to a question, he said OCI plans to maintain the Workers Compensation Advisory Council.
- Industry representatives noted that the current system has a long history of success, so insurers want to be sure any changes keep it that way.
- The Local Government Property Insurance Fund would be eliminated as unnecessary with maturation of the private market. Under the proposal, the fund would stop issuing new business upon enactment of the budget, and would stop renewing policies January 1, 2016. In response to a question about the legislature’s position, Dan Schwartzer noted that there will probably be pushback from local government. In response to a suggestion that premium might be higher in the private market, he said there were some concerns about the solvency of the fund, so that premium may have been going up anyway.
- OCI’s ALJs would also go to the Division of Hearings and Appeals.
- The budget eliminated many long term state employee vacancies, including one-half of a position at OCI.
Ride Sharing Coverage
The Deputy Commissioner also noted that coverage for drivers in Transportation Network Companies (TNCs) like Uber and Lyft is a nationwide issue, so the National Association of Insurance Commissioners (NAIC) is dealing with it. J.P. Wieske said that the NAIC has created a working group on the sharing economy, which has released a draft of TNC insurance principles for legislators and regulators; is looking at model legislation on ride sharing; and will deal with home sharing (like Airbnb) in the second half of the year.
Dan Schwartzer said NAIC members have a wide range of opinions on the subject, but that trying to block market changes is not OCI’s philosophy; OCI will offer its expertise, but will not be an advocate for legislation. That is the legislature’s job and, in Wisconsin, Rep. Tyler August (R-Lake Geneva) is looking at legislation on the subject. He asked OCI whether there is a need for changes to the insurance code, but OCI believes current law is sufficient. OCI also believes that personal auto policy exclusions for livery should mean there is no coverage when a driver has the ride sharing application turned on (period 1), when the driver has accepted a passenger (period 2), or when there is actually a passenger in the car (period 3). If an insurer clarifies the livery exclusion, an “altered terms” notice to the policyholder should not be required, but that will depend on the language.
Rep. August asked OCI to issue a bulletin on the subject, so OCI will probably issue one on the livery exclusion and period 1. While the bulletin probably would not deal with whether an “altered terms” notice is required, OCI may issue opinions on that subject for specific changes.
J.P. Wieske reiterated that coverage for period 1 is a legislative prerogative, and that OCI’s focus is consumer protection (as in the OCI newsletter article encouraging agent awareness of ride sharing issues) and outlining insurance principles (as in the NAIC paper). This was in response to a description of legislation Uber is advocating that would preempt local control of ride sharing, which probably will pass. Insurers would like to revise the proposal along the lines of California legislation that clarifies coverage for period 1, which Uber wants covered unless it is specifically excluded.
J.P. Wieske reminded the Council that Commissioner Ted Nickel is Secretary-Treasurer of the NAIC, and thus is on its Executive Committee. Michael Consedine is no longer the Insurance Commissioner of Pennsylvania, so the NAIC President-Elect position he held is open and there may be a reshuffling of officers. (Since the meeting, the NAIC elected Missouri Insurance Director John M. Huff as President-Elect.)
Wisconsin is represented on the new Cybersecurity Task Force, and is still on the Health Insurance and Managed Care Committee (though the Commissioner could not move up to chair because of his Executive Committee position). Commissioner Mike Chaney of Mississippi again chairs the Property and Casualty Insurance Committee; the Sharing Economy Working Group is under this committee.
Own Risk and Solvency Assessment (ORSA)
Dan Schwartzer said the budget would authorize outside actuarial services to allow proper review of the new ORSA filings. J.P. Wieske added that the NAIC is providing training on review of the filings based on the reports prepared for the pilot program. He said OCI expects wide variation in the assessments based on the size of the company. In response to a question about whether OCI would combine the assessments with financial examinations, he said they were somewhat different.
Terrorism Risk Insurance Act (TRIA)
Mollie Zito, OCI’s General Counsel, noted that OCI is monitoring the NAIC’s TRIA committee now that the Act has been extended through 2020 with some changes. She said OCI is looking for input on whether OCI should issue some form of the committee’s model bulletin. Also, the Federal Insurance Office (FIO) asked for a call with the committee, and wanted to discuss whether the model disclosure notices are sufficiently readable. FIO is apparently looking to expand its role in the market.
Jaclyn de Medicci noted that the System for Electronic Rate and Form Filing (SERFF) has a special form to expedite approval of new terrorism form filings. Paper filers should reference “TRIA” on their filings to obtain a waiver of the normal 30 day review period. In response to a question about whether OCI had seen contingent endorsements or other TRIA activity, she said she was not aware of any.
The Council discussed the special issues TRIA raises for workers compensation coverage. Terrorism is a major risk for workers compensation coverage, which also requires quick payouts to protect workers. It is unlikely that the federal government would reimburse insurers under TRIA very quickly, which could cause solvency issues. Also, the reduced coverage TRIA allows when losses exceed a certain amount seems inappropriate for workers compensation.
Legislation and Rulemaking
Holding Company Rules. Mollie Zito said OCI is very close to publishing its new rules with a few minor changes. OCI will be available to answer questions on the new Enterprise Risk Report (Form F) required from insurance holding companies.
Credit for Reinsurance Rules. Mollie Zito reported that the Governor has now approved the Statement of Scope on these rules, so OCI can begin drafting. The industry has expressed some concerns about gaps in the model law, and OCI is open to input as it drafts the rule revisions. It will probably be a couple of months before OCI circulates a draft.
National Association of Registered Agents and Brokers (NARAB). Mollie Zito said that NARAB II, which passed with TRIA, is supposed to streamline licensing for multi-state agents. NARAB will be a nonprofit entity overseen by a board controlled by insurance regulators (but with industry representation), and should be up and running by January 2017. Agents will need a license in their home state, but receive a “passport” to sell in other states (where they still must pay a license fee and be appointed by insurers). NARAB will probably require the usual 24 credits of continuing education every two years and fingerprinting.
OCI Technical Bill. J.P. Wieske said OCI’s legislative proposal for this session will involve a lot of technical issues, including:
- Authorization for the mental health managed care organizations requested by the Department of Health Services, which will operate like the Family Care program.
- Elimination of reporting requirements that have outlived their usefulness, including reports on product liability insurance and health insurance rescissions (which are no longer allowed). OCI is looking for input on other reports that might be eliminated.
- Authorization for OCI to share information with international regulators.
- Clarification of the business insurers may engage in directly vs. through subsidiaries.
- Revisions to board of directors provisions for town mutuals.
- Recognition of the contingent deferred annuity hybrid.
- Application of principles based reserving to life insurers.
OCI should start drafting the proposal in the next week or so, and then will send it out.
J.P. Wieske said the effort at the NAIC to find the next, post-Flesch test generation of transparency and readability tools for consumers is not going away. The industry is focused on financial literacy, but consumer advocates say insurance consumers don’t shop or read the information they get, and are looking for shortcuts. There is a philosophical debate over whether government ought to encourage shortcuts, and a practical debate over whether policy provisions can remain meaningful as they are simplified.