IAIS proposing removing ‘observer’ groups, adding public forum and phone time

UPDATE with NAIC consumer rep comment

July 31, Washington—In a move that had been anticipated by some for awhile, the International Association of Insurance Supervisors (IAIS) told members and observers that it is proposing the elimination of “observer” status. If this proposal becomes policy, it would go into effect January 2015.
Comments on the proposal, which is expected to become public Aug. 4, will be due on Sept. 2.
The IAIS, which did not confirm this action or timeline. It has been developing and weighing new processes for participation by interested parties for some time and will continue to do so.
Some groups have in the past been vocal about their  criticism of the move toward what they feel has been a trend at the IAIS toward less transparency and more closed meetings. Observers say the policy will definitely change the dynamics  of interaction with the IAIS at a critical time.

A global insurance capital standard is in the works by 2016 for globally active insurance groups, with implementation by 2019, alongside the continued development of capital standards for global systemically important insurers (G-SIIs) and possibly for global reinsurers.

The IAIS is also developing basic capital requirements (BCRs), which are planned to be finalized this year for implementation by global systemically important insurers (G-SIIs.) BCRs will serve as the foundation for higher loss absorbency (HLA) requirements for G-SIIs, and it is anticipated that their development and testing will also inform development of the ICS, the IAIS stated last year.

“You are talking about very complex issues here –the idea that  they are decided in closed sessions is absurd….Corporate governance now being thrown out the window–they spend 10 years opening up these meetings, and now with the flick of a switch they are going to close them,” one industry executive noted.  “Why is it that the public that is most effected by this have little time…less than a month… to comment?”

Also, recently, there are some key observers who just got their ‘wings.” The latest inductees into the observer ranks had strongly pushed for inclusion–namely, consumer groups and the independent insurance member of the U.S. Financial Stability Oversight Council (FSOC.)

Peter Kochenburger, one of six National Association of Insurance Commissioners  (NAIC) consumer representatives designated for IAIS observer participation was worried about the effect of any new policy after consumers had just gotten their foot in the door.

Unlike big insurance  companies, the consumer advocates are less well known and could have really benefitted from face-time with their counterparts from different countries as well as from having an audience with international regulators, he noted. He expressed concern that  eliminating observer status will reduce the effectiveness of consumers’ participation although that is not the intent of the new proposal.

Kochenburger, a University of Connecticut law professor and executive director of the law school’s insurance law center, says he thinks communicating only via e-mail, conferences calls and the like does not enhance understanding and developing trust (if not agreement) between the parties.  However, he noted, consumer groups will always be very strapped for paying for travel (despite funding up to a point by NAIC) and always vastly outnumbered by the industry in public live meetings so the proposed this emphasis on written communication/comments could help level the playing field a bit.  He also supported the IAIS intention of setting out specific processes and timelines for stakeholder participation, and welcomed written participation.


Roy Woodall, the appointed independent insurance expert and insurance voting member at FSOC, gained observer status this winter after trying for more than a year and half to become part of the proceedings. Woodall had publicly expressed strong concern in Congressional hearings about not having access to important regulatory discussions on financial stability of insurers in the FSOC’s wheelhouse when associates at NGOs and other service-oriented organizations could join the top-level discussions.

The Federal Reserve Board, also an FSOC member, was approved for membership –more than observer status-in the fall of 2013. The Federal Insurance Office is also a member.
Observers pay a flat fee of $19,000 Swiss Frances (CHF). A 2013 IAIS list denotes 144 observers for a possible total of 2.736 million CHF which is over $3 million US dollars.
Members pay quite a bit more. Total such fees for 2013 were 3,848,900 CHF or $4.237 million converted today. The NAIC pays a hefty 317,000 CHF, or almost $350,000, dwarfing the fees of any other member. They also bring more people to the table.
The Federal Insurance Office fee is $14,100 CHF and the UK, Canada, the Netherlands and Bermuda have a membership fee of 67,000 CHF, the top fee among most other global jurisdictions.
It is thought that the Financial Stability Board (FSB) could help fund the difference if and when Observers are dropped from membership, although no one is publicly discussing options.
IAIS observers include in the United States as of 2013:  ACE, INA Holdings Inc .,  ACORD
AFLAC, AM Best, American Council of Life Insurers (ACLI,) American Insurance Association(AIA), AIG, Assured Guaranty Municipal Corp., Barnert Global Ltd., Cigna International Corp. CNA Insurance, Deloitte LLP, DLA Piper, LLP, Duane Morris LLP, Examination Resources LLC, Genworth Financial, Liberty Mutual Group, MassMutual Financial Group, MetLife, New York Life International, Northwestern Mutual, Promontory Financial Group, LLC, Property Casualty Insurers Association of America (PCI), Prudential Financial Inc, Reinsurance Association of America USA, Starr International USA Inc., The Chubb Corp., Transatlantic Reinsurance Co., Travelers Companies, Inc., Treliant Risk Advisers, United Health Group and XL Group.

The NAIC consumer representatives, as noted,  and international organizations such as the International Actuarial Association, the World Federation of Insurance Intermediaries and Insurance Europe are also observers.

TRIA renewal teed up in House but legislation sharing the day may put brakes on FSOC

The House Financial Services Committee (HFSC) has a full agenda Thursday, June 19, with a mark up  and likely passage of the Terrorism  Risk Insurance Act Reform Act of 2014, which will extend the program for five years, albeit with an increased co-pay, and higher  program trigger amounts, through Dec. 31, 2019, along with consideration of  bills to slow down and open up to Congressional eyes  the Financial Stability Oversight Council (FSOC).

Housing and Insurance Subcommittee Chairman Randy Neugebauer is introducing the bill before the full committee.

The ease with which the House bill has been accepted, although it is more austere in what is provided for the insurance industry  than the Senate TRIA version, combined with the support for action, likely means the House legislation will sail through with broad Republican support,  until it meets the softer Senate version in conference committee. Then, real tussling could begin.

How the House Democrats will vote on Thursday is said to be a major factor in how the bill moves forward.

If the Democrats on the HFSC are led in a  vote against the TRIA renewal bill, there could be a floor fight. If they vote for it, the bill could go forward on the suspension calendar next week on two-thirds of a vote.

A key question is the Thursday vote of Rep. Carol Maloney, D-NY,  ranking member of the House Financial Services Subcommittee on Capital Markets and GSEs.

Maloney stated in May that raising the program trigger for conventional terrorist events from $100 million to $500 million  and increasing the recoupment of federal payments to 150 percent, which are both features in the Neugebauer bill, “are changes that go far beyond what the market will bear. The economic consequences of these proposed changes to TRIA for metropolitan areas like New York, which continue to be at risk of another attack, would be disastrous.”

However, her office pointed out that since key components have changed, this statement does NOT apply to the current draft.

Another major consideration the industry is concerned about is how  the Congressional Budget Office (CBO) scores the bill, and for how much, given the proposed recoupment level.

Beginning on January 1, 2016, the House bill increases the amount that the Treasury Secretary is required to collect through terrorism loss risk-spreading premiums from 133 to 150 percent of the federal payments made subject to mandatory recoupment. The bill clarifies that the amount of federal payments subject to mandatory recoupment shall be equal to the lesser of the total of federal payments made or the insurance marketplace aggregate retention amount.

But so far the insurance industry is on board to get this bill quickly  through Chairman Jeb Hensarling’s, R-Texas,  committee.

“Any sign of progress is a welcome one,” said Jimi Grande, political affairs senior vice president for the National Association of Mutual Insurance Companies (NAMIC) of the bill that would bifurcate nuclear, biological, chemical or radiological type (NBCR) of attacks from the conventional terrorism trigger amounts.

The American Insurance Association (AIA) praised the growing momentum for TRIA reauthorization in the House but cautioned that certain provisions of the bill could decrease market capacity, citing the bifurcation of conventional terrorism acts with the NBCR attacks. This differentiation “falsely assumes that the insurance market operates based on the same distinctions,” stated AIA president and CEO Leigh Ann Pusey.

Ken Crerar, president and CEO of the Council of Insurance Agents and Brokers (CIAB) stated the organization which represents the largest commercial insurance brokerage firms is “so gratified to see great legislative progress…”

“We hope the Committee and the full House act swiftly so that the Congress can send TRIA legislation to the President for his signature before the August recess,” stated Nat Wienecke, senior vice president, federal government relations at the Property Casualty Insurers Association of America (PCI).

PCI and its member companies applauded what they said were several improvements that have been made in the legislation, including the “reasonable reauthorization duration, maintenance of the “20% insurer deductible,” and incorporation of  “very important technical corrections to the terrorism certification process.”

The Senate bill, S. 2244, contains a seven-year reauthorization and is awaiting a full vote by the Senate.

“We echo the calls of all the key stakeholders for the Financial Services Committee to advance the legislation which has been authored by Chairman Neugebauer. We’re particularly grateful for the Chairman’s decision to seek a five-year extension of the program—just one of many substantive improvements that have been made after close and deliberate consultation with all of the major interests in recent weeks,” Crerar stated.

As Crerar noted, the appropriate federal role in the terrorism insurance marketplace has been debated for 13 years —  and this is the fourth Congressional debate.

There are industry exposure concerns with the House bill but not many were voiced today, in advance of the mark-up.

The House bill increase of trigger amounts to $500 million at the end of five years, can be absorbed by large companies if their coverage as one company does not saturate the marketplace or have too great an area of concentration, but smaller insurers, who may be able to opt out of offering coverage, cannot absorb the higher amounts readily. The tilt in  terrorism risk exposure to only a few, large companies could  skewer the marketplace and raise prices, insurers worry.  And some in the insurance industry remain skeptical of the large co-share or co-pay on top of an already sharply increased trigger amount for federal coverage.

Congress, by and large, wants the industry to fend for itself more in underwriting terrorism risk but almost all of the insurance industry, although conceding the point, says it is not ready to fully expose itself to known and unquantifiable future losses because they are almost impossible now to underwrite and the capacity for full exposure is not there.

With regard to other proposed  insurance reform measures, many in the industry hope that Neugebauer can attach the ‘NARAB II’ legislation to facilitate interstate agent/broker nonresident licensure to the TRIA legislation. NARAB has support from almost all quarters, including the National Association of Insurance Commissioners (NAIC) and the Federal Insurance Office (FIO.)

The full HFSC will also mark up legislation to place a six-month moratorium on the authority of the FSOC to make financial stability decisions under section 113 of Dodd Frank. Asset managers and mammoth insurer MetLife, which has been under intensive review by the FSOC for almost a year as a systemically important financial institution, have resisted the suggestions that they are systemically risky  the financial markets.

Both the FSOC and the global Financial Stability Board (FSB) have begun examining whether regulated funds or their managers could pose risk to the overall financial system and thus should be deemed SIFIs.

U.S. mutual funds designated as SIFIs would be subject to new, bank-style prudential regulation that could significantly harm funds and the investors who rely upon them. Singling out individual mutual funds for inappropriate regulation or supervision would raise costs for fund investors and distort competition, among other harmful effects, according to the Investment Company Institute Viewpoints blog.

The HSFC will also be marking up H.R. 4387, the FSOC transparency and Accountability Act.

This bill would open up to varying degrees of participation  the FSOC processes to members of Congress, and to the boards and commissions of the agencies that serve on the FSOC, from the Securities and Exchange Commission (SEC)  to the National Credit Union Administration (NCUA.)  It would also make the FSOC subject to both the Sunshine Act and  the Federal Advisory Committee Act. It was introduced by Capital Markets and GSEs Subcommittee Chairman Scott Garrett, R-N.J.

The U.S. Treasury, which houses FSOC, did not comment on the FSOC measures but rarely comments on the particulars of  legislation. Treasury and the Obama Administration have acknowledged their support of TRIA renewal.

“I should add that we, Treasury, applaud the strong bipartisan action by the Senate Banking Committee to preserve the long-term availability and affordability of property and casualty insurance for terrorism risk.  A report of the President’s Working Group on Financial Markets recently affirmed the importance of TRIA to the national economy.  We look forward to swift action by the full Senate and the House to extend the program,” FIO Director Michael McRaith stated in a recent speech in New York this month.

How this will play  out if  the somewhat-hobbling FSOC legislation is attached to the TRIA renewal bill is another story. The next closed FSOC meting is next week, on June 24.

Choice, budget ratios and ‘big data:’ FIO suggestion box on auto premium affordability gets a fill-up

The best way to judge personal auto insurance affordability is to look the premium costs as a percentage of disposable household income although this isn’t meaningful without examining whether it is even available in areas, according to a leading consumer advocate on insurance policy.

Or: A reasonable measurement of affordability is one that recognizes “relativity and consumer choice.” What is affordable to one consumer is not necessarily what another would consider affordable, and income may have no bearing on this consideration, countered a top personal lines trade association. One such consumer choice?: to even go out and purchase a vehicle, it said.

Birny Birnbaum’s consumer advocacy group, the Center for Economic Justice (CEJ) and the American Insurance Association (AIA) were among those submitting comments to the Federal Insurance Office (FIO)  Monday in response to a request from the Treasury office on how it should define auto insurance affordability and what metrics and data would best show the extent underserved communities and consumers, minorities, and low- and moderate- income (LMI) persons can actually procure affordable insurance.

Beth Sammis, FIO Deputy Director for Consumer Affairs, wrote in a Treasury blog in mid-April that the FIO exercise is necessary because it is hard to know if personal auto is becoming more or less affordable as insurers change how policies are priced with new risk classifications.

FIO remains very interested in the increased use and penetration of ever more precise and pervasive use of data mining to create risk categories and pricing and who and how  it might harm consumers.

After all, FIO stated in its  late 2013 Modernization Report that states should develop standards for the appropriate use of data for the pricing of personal lines insurance. “

That’s because, as FIO has noted,  there is a public policy issue at stake: Owning an automobile is likely associated with a higher probability of employment and other factors associated with economic well-being, Sammis wrote in her blog piece, which was echoed in the FIO call for comments.

With the exception of New Hampshire, all states require a consumer who owns and drives a car to maintain liability insurance.  From 2002 to 2009, the percentage of uninsured motorists nationwide hovered around 14 percent, according to FIO.

The AIA repeatedly pointed to the element of choice taken by the consumer and noted that the cost of insurance is but one cost associated with ownership of a vehicle — but that it is  the only cost subject to a “long-standing and comprehensive system” of state rate regulation and price controls.

CEJ took on insurers increased  use of so-called :big data and data mining for pricing in its comments,  but interestingly, prefaced its position  by calling for FIO to “take significant action to fulfill its Congressional mandate and monitor the availability and affordability of personal auto insurance.”

The Dodd-Frank Act of 2010  provides FIO with authority to monitor exactly this, and FIO reached out for comments April 10 some months  after the Availability and Affordability Subcommittee of the FIO’s Federal Advisory Committee on Insurance (FACI) took on the issue, proposing in part that affordability means that the cost of personal auto insurance is a “reasonable percentage” of a consumer’s income.

FIO noted that one approach may be to declare personal auto insurance as affordable if premium payments don’t prohibit people from purchasing other required household  necessities. Or, perhaps auto insurance may be interpreted as affordable if it is “actually purchased,” FIO wrote.

FIO is also looking at rounding up other  data sources to monitor affordability and availability.

Birnbaum, who serves on the FACI, favors the FIO suggestion of how the cost of auto insurance plays out among other household  costs. “We suggest that the notice’s example is a useful one – does not preclude a person or family from the purchase of other necessities,” CEJ’s Birnbaum stated in his June 9 comment letter.

With such a definition, the metric will vary by income levels – from a very small percentage at very low incomes to somewhat higher at low incomes, CEJ noted.

However, take a good look at availability, too, Birnbaum says.

While insurers licensed to write in a specific state may sell insurance anywhere in the state, the fact is that many insurers focus on non-LMI markets, while so-called “non-standard” insurers focus on LMI markets, according to the Texas economist, who  has  performed availability analyses of personal auto insurance for the Texas Office of Public Insurance Counsel and the Texas Department of Insurance who developed a data collection program for monitoring market performance of insurers in Texas auto insurance markets.

While some risk classification is essential to avoid adverse selection and to provide economic incentives for less risky behavior, states have allowed pricing practices that disfavor LMI consumers, Birnbaum charged.

For example, most states allow insurers to use small geographic rating territories for uninsured motorists with the result that consumers living in LMI communities are forced to pay more for  coverage simply because more of the neighbors cannot afford insurance than consumers in non-LMI communities, CEJ charged.

States have allowed ultra-refined, very small geographic rating territories which reflect and perpetuate historic housing discrimination, according to Birnbaum’s CEJ.

FIO stated that while data on average personal auto insurance premium by coverage is collected by the National Association of Insurance Commissioners (NAIC), other data sources will likely be needed.

Over the past year, the NAIC has worked to compile a report about the availability and affordability of auto insurance (“Compendium of Reports Related to the Pricing of Personal Automobile Insurance”) that will be considered by the full NAIC membership later this summer.

The AIA said that FIO need only look at existing data from a number of sources and noted that according to NAIC data, the average expenditure for auto insurance nationwide was well below the rate of inflation in the last decade while  family health insurance coverage rose on all counts.

The AIA also pointed to the Automobile Insurance Plan Service Office (AIPSO) as a source for data  on changes to the size of residual markets over time, as well as rates charged by residual market funds as compared with average rate levels in the voluntary market.

“AIA feels this data will demonstrate that residual markets have shrunk over time due, in part, to the increasing ability and willingness of the private market to competitively price a broader range of risk and offer affordable coverage to a wider segment of the population,” stated AIA Senior Counsel & Director of Compliance, Lisa Brown.

The NAIC couched its response in caution and  pushed the discussion outside the sphere of insurance regulatory policy.

“Our work has shown that concepts of affordability and availability are somewhat subjective and vary depending on a number of factors like financial resources, historical norms and experience, supply and demand, and expectations for the scope of coverage, among others,” the NAIC leadership stated.

There are important public policy considerations that impact whether insurance premiums are purely “actuarially justified” ( versus premiums that include adjustments for “social equity” and flatten out pricing such that higher risk drivers pay less and lower risk drivers pay more, the NAIC told FIO.

” Understanding and improving availability and affordability, particularly for property/casualty products like auto insurance, may require holistic solutions that extend beyond insurance and insurance regulation,” concluded the state regulatory leadership led by Adam Hamm of North Dakota.

More industry and some regulatory responses, which were due  to FIO June 9th, are expected to become public shortly and may be added here later as they become available.


Moveable feasts of TRIA & insurer capital await House calendar after Senate victories

Two pieces of legislation atop many U.S. insurers’ wish-list celebrated success in the Senate June 3 and could find themselves part and parcel of a larger bill in conference if companion legislation moves forward in the House.

The Senate Banking Committee passed the Terrorism Risk Insurance Association’s (TRIA) reauthorization Tuesday 22-0, the first such movement of any TRIA reauthorization legislation this year.  The House course of action on TRIA is widely said to be caught up in House Financial Service Committee leadership concerns.

Also Tuesday, the full Senate approved legislation (S. 2270) that would allow the Federal Reserve Board’s flexibility to develop insurance-based capital standards for insurance companies under its supervision.

Basically, the bill  would temper the effects of the Dodd-Frank Act’s seemingly watertight  Collins Amendment on development of capital standards for systemically important insurers, thrift/ savings & loan holding companies (SLHC’s) and any future insurance company that would or could come under the Fed’s purview.

Although the House has not forged legislation yet on TRIA, it is the centerpiece of any insurance potential lawmaking this year, so many say it could carry along any Dodd-Frank fixes with it once (and whether) it climbs through both chambers of Congress.

Housing and Insurance Subcommittee Chairman Randy Neugebauer, R-Tex., is expected to soon introduce the House`s TRIA reauthorization bill, according to the property casualty insurance lobby. Although a slim reauthorization package has been suggested, and insurers clamor for broader cushions, some compromise action is anticipated, as urgency among insurers grows.

Earlier this year, the Fed temporarily exempted life insurers from bank-centric rules while it explored capital standard options for life insurers. Fed officials have testified or shared that the Collins Amendment, or Section 171, gives them little flexibility to exempt or change life insurers from strict minimum capital standards intended for banks.

S. 2270 is designed to give the Fed the ability to develop insurance-specific standards for insurance companies as it moves forward.

In the House, there is legislation, although it hasn’t gotten the ride it has in the Senate.  Gary Miller, R-Calif. and Carolyn McCarthy, D-N.Y., and 51 cosponsors are pushing for  H.R. 4510.

The American Council of Life Insurers (ACLI) says rules governing life insurers on all issues must be appropriate for life insurers. “There is broad agreement on this position. The Obama administration, Democrats and Republicans in the House and the Senate, state and federal regulators and private industry all agree that life insurers should not be subject to capital standards more suited for the business of banking,” the ACLI stated yesterday.

Sen. Susan Collins, R-Maine, author of the Collins Amendment, Sen. Sherrod Brown, D-Ohio, and Sen. Mike Johanns, R-Neb., for introduced S. 2270.

Swinging back to TRIA, the American Insurance Association (AIA) says it is confident that TRIA will be reauthorized in 2014 with strong bi-partisan support.”

“The program maximizes private market risk bearing while protecting taxpayers at every step.  By placing the financial recovery on the private market in all but the most catastrophic of attacks, TRIA protects the federal government and taxpayers from this potential exposure,” the AIA stated.

For a comprehensive overview of TRIA authorization history, see http://www.fas.org/sgp/crs/terror/R42716.pdf  TRIA was reauthorized in 2005 and 2007 after its first authorization in 20002 in response to the Sept. 11, 2001 terrorist acts.

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