Monica Lindeen is Commissioner of Securities and Insurance, Montana state auditor, NAIC Vice President and a representative on the Federal Advisory Council on Insurance. She recognized that today’s industry is challenged to remain competitive in an increasingly complex marketplace. Insurers must provide consumers with products that are both innovative and protective in nature.
At the federal and international level, the NAIC is focused on standard setting and providing members with a forum to discuss regulation initiatives. Commissioner Lindeen noted a shift has occurred in the life insurance sector, where the focus is moving from a formulaic to a principle approach. In 2012, the NAIC adopted a principle-based reserves (PBR) system for calculating company reserves. The NAIC has established a task force to address questions related to the PBR method.
Also in 2012, the NAIC adopted the Risk Management and Own Risk and Solvency Assessment Act (ORSA) model law. The Act’s requirements will become effective in 2015. Commissioner Lindeen noted that ORSA will provide companies with self-assessment tools to evaluate risk and anticipate where problems might arise.
In the wake of the 2008 debacle, state regulators were forced to reevaluate their group supervisory network. Some key outcomes of the NAIC’s Solvency Modernization Initiative include the filing of an enterprise risk report to provide regulators with additional risk information and the establishment of ORSA.
On the reinsurance front, the NAIC revised the Model Credit for Reinsurance Law and Regulation, a major step following 10 years of debate. The law provides states with more flexibility when determining which foreign reinsurers should be allowed to post reduced collateral. Commissioner Lindeen noted that the program has been well received and 11 states have enacted reduced collateral revisions, while others are considering adapting the program.
The NAIC also plays the role of watchdog and consumer protector. The organization cooperated in a multi-state social security investigation that uncovered and exposed fraudulent annuity payments. In the wake of Super Storm Sandy, the NAIC partnered with state regulators to assist with customer service and teamed up with FEMA authorities, regulators and insurers to serve storm victims.
At the federal level, the NAIC is working with states and Congress to improve understanding of the Affordable Care Act. It is also providing resources and online models for states to utilize as they prepare to implement the Act. As the October 1, 2013, deadline for the online state exchange marketplace approaches, states are responding in varied ways. The NAIC has provided checklists, white papers and other support resources on its web site to assist states in the exchange development process.
The creation of the FIO does not detract from NAIC’s work, but serves as a voice for the industry in international matters. Commissioner Lindeen noted that Missouri Insurance Director John Huff’s role as the state insurance commissioner on the FSOC provides state regulators with a voice on national and international concerns.
In a post Dodd-Frank world, insurance companies that operate thrift institutions face expanded requirements. Commissioner Lindeen noted that more than 800 rules related to Basel III will apply to such institutions. There is concern that a lack of understanding about the differences between banks and insurance companies could create a one-size-fits-all approach applied in a bank-centric measure of risk.
While capital standards are important, Commissioner Lindeen noted that ensuring active solvency oversight is critical. Capital requirements alone cannot assure safety and solvency. "Capital is merely one tool in a bigger toolbox," she stated.
One day before the Insurance Public Policy Summit, legislation that would streamline insurance agent licensing was introduced in both houses of Congress. The legislation aims to make the licensing process more efficient while protecting state policies. Commissioner Lindeen said that if the legislation advances, it could be up and running within 24 months.
On matters of international insurance supervision, the NAIC is focused on building and strengthening relationships with the IAIS. Building on the EU-US Dialogue Project, NAIC President Kevin McCarty contributed to the December 2012 joint Technical Committee report comparing certain aspects of the insurance supervisory and regulatory regimes in the EU and US. The detailed joint report outlines commonalities and distinctions of each region’s supervisory structure.
As groups continue to develop ComFrame as a tool for coordinating the supervision of internationally active insurance groups, some advocate for a universal global capital standard. The NAIC believes such a standard would place an over-reliance on capital at the expense of other considerations in the supervisory function. It should be noted that global standards in banking did not deter banks’ risk taking and imposing similar standards on banks could precipitate future crises.
Commissioner Lindeen concluded that at home and abroad, the NAIC will strive for opportunities to achieve commonality in its effort to ensure the industry is characterized by a high degree of solvency and competitiveness.
Our partners for this event, Faegre Baker Daniels, have also published a brief report of the Summit.