NAIC decries the member vote to end IAIS ‘observer’ status

Oct. 27, 2014, Washington — The National Association of Insurance Commissioners (NAIC) expressed strong opposition to the International Association of Insurance Supervisors (IAIS) vote to end observer membership status for non-members. The vote, which took place in closed session at the annual general meeting on Oct. 25 in Amsterdam, amended IAIS bylaws to end this observer status, which included participation in some IAIS meetings.
The IAIS is creating new stakeholder consultation procedures which have not at all been embraced by the once and former observers.
Ahthough the vote occurred in a closed session, the NAIC delegation voted against the measure, while the Federal Insurance Office (FIO) voted for it and the Federal Reserve Board representative allegedly left the room.
After attempts to work together, the schism on international supervisory issues among U.S. representatives is still defined by issues such as this.
“I am extremely disappointed in the outcome of Saturday’s vote to end observer status at the IAIS,” said Adam Hamm, NAIC President and North Dakota insurance commissioner and IAIS member. “Observers run the range of consumer advocates, insurance experts, and industry representatives – all of whom have critical input to share on the real-world consequences of decisions made by regulators. Shutting them out of the official process in favor of ‘invite only’ participation deprives IAIS members and stakeholders alike and could diminish the credibility of decisions made at the IAIS,” said Hamm, who also sits on the US Financial Stability Oversight Council (FSOC.)
ALthough the FSOC role does not assure one of membership, the fact that the NAIC members are state regulators does.
Observers, from insurance groups and lobbyists to consumer advocates to the insurance expert on the FSOC have previously spoken out against the change, criticizing the long-anticipated move for lack of access and lack of time to effect any important and long supervisory process of crafting rules — rules that would be eventually applied to insurance companies, and effect regulations, markets and consumers.
“Relegating systemic risk policymakers to only those opportunities afforded to the general public would reduce the likelihood of effective attainment of the IAIS goal of providing a meaningful contribution towards global financial stability,” FSOC Independent Insurance Expert Woodall stated in a comment letter to the IAIS in early September.
Said consumer advocate Peter Kochenburger, executive director of the Law School’s Insurance Law Center,”I would say that the IAIS annual conference in Amsterdam further confirmed the value of stakeholder participation: (1) without any consumer (policyholder) participation the dialogue is either regulators talking only to themselves, or to the industry, with the crucial second party to any insurance transaction, the policyholder, not having a voice (2) as the industry points out, they will be responsible for ultimately following and implementing changes in national (or state) insurance laws and have a knowledge base and stake in participating in its making.”
The new consultation procedures being developed will likely outline how certain stakeholders may participate in portions of some meetings by invitation only as well as the creation of open hearings with stakeholders separate from IAIS meetings.
The Center for Economic Justice (CEJ), run by IAIS observer consumer advocate Birny Birnbaum, said also in a comment letter Sept. 2, the IAIS new, proposed policy for consultation of stakeholders is not a good solution because it “will not ensure all relevant stakeholders are properly consulted because there is no formal consumer participation program or assistance, because the implementation is left to the discretion of the Chair and because there is no formal training for members or committee leadership in implementing public participation policies and procedures.”
Besides being “clearly not transparent,” the proposed ‘standardized framework’ is too short on the required interactions and too long on the options to ensure consistent stakeholder interaction across committees and projects,” Birnbaum wrote.
The IAIS is in part funded by Observer fees and some anticipate that the G-20’s Financial Stability Board (FSB), which is directing many of the IAIS work on international capital standards, may pay the funds now.
“Over the years, the IAIS has benefitted from the input and ideas provided by our observers which not only result in quality end products, but also provide our stakeholders with a better understanding of our work and our development processes,” said Kevin McCarty, Florida insurance commissioner and past NAIC president, who has served in IAIS roles for some years and who serves on the IAIS Executive Committee.
“…we are concerned about changes which will result in less transparency and openness by closing all meetings to stakeholders going forward,” he continued, contrasting the NAIC’s policy of transparency with the IAIS’ plan.
U.S. state regulators are not alone in their concern with the new process. Congress has introduced a bipartisan resolution calling for openness and transparency by the IAIS, the NAIC pointed out in a release.
Dave Snyder of the Property Casualty Insurance Association (PCI), who recently returned from Amsterdam, remarked that”the NAIC vote upholds the views of our federal and state lawmakers and our traditions of openness to all interested parties. On the other hand, the IAIS action is a serious mistake as it will make it more difficult to meaningfully consider the views of all stakeholders. It will also potentially result in flawed standards and guidance that will run into preventable opposition and thereby fail to be implemented.”

FSOC’s Woodall troubled by IAIS’s proposal to limit involvement; others weigh in

The ability for international authorities to confer with policymakers with authority for financial stability in the insurance sector would be greatly hindered under an International Association of Insurance Supervisors (IAIS) proposal to basically cease “Observer” status Jan. 1. argues a member of the US Financial Stability Oversight Council (FSOC.)

FSOC Independent insurance member Roy Woodall says that the proposal detailed in the IAIS Notice of Request for Comment of Aug. 4, 2014, would render null and void  the purpose for joining as an “Observer” earlier this year, (see http://www.insurancejournal.com/news/national/2014/02/18/320673.htm) and could dampen oversight of global financial stability.

“Relegating systemic risk policymakers to only those opportunities afforded to the general public would reduce the likelihood of effective attainment of the IAIS goal of providing a meaningful contribution towards global financial stability,” Woodall stated in a comment letter to the IAIS late last week.
The IAIS is and must remain a critically important resource to systemic risk policymakers throughout the world.  To achieve its objective of contributing to global financial stability, the IAIS should consider how best to ensure that it continues to have the strongest possible ties with systemic risk policymakers so that they will benefit from and be able to act upon the informed and knowledgeable efforts of the IAIS in the area of global financial stability,” Woodall wrote.

Comments on the proposal are due Sept. 2.

The Notice of Request for Comment announced  two agreements by the  IAIS Executive Committee: an agreement that non-members would no longer generally participate in meetings but rather be invited when necessary to provide targeted, technical input; and that IAIS engagement with outside stakeholders would increase through special sessions, more dissemination of   documents and the use of conference calls as opposed to the in-person high-level meetings the IAIS has been holding  thus far.

But the IAIS proposal could have the unintended effect of excluding policymakers with legal authorities for financial stability regarding the insurance sector and who may not themselves be supervisors–like himself, Woodall argues.

For global financial stability to be most effective it needs experts on the insurance sector, and to include those with legal authority, he points out.

Woodall suggests that the IAIS could provide for participation by systemic risk policymakers as non-voting members, a suggestion that has been thorny in the past.

The IAIS could reconsider revising its bylaws so that  the IAIS could include “national organizations” and their members, which would  include systemic risk policymakers who serve on the FSOC — and members of other similar national bodies elsewhere, Woodall suggests.

For instance, the IAIS has similarly recognized the need for engagement by critical participants in other areas and has welcomed the participation of organizations like the World Bank, the Asian Development Bank and others as non-voting members, he notes.

Woodall acted to join as an “Observer” after a proposed IAIS bylaw amendment that would have permitted systemic risk policymakers to join as non-voting members was tabled by the IAIS Executive Committee at the annual meeting in Washington, D.C. in 2012.  U.S. members of the IAIS Executive Committee at the time  were divided on the motion, with reports of concern about the wording and  the inclusion of too many non-specific insurance entities with too broad a view of a jurisdiction’s financial  stability officials.

The NAIC and the U.S.  are already heavyweight members because of their numbers and agencies represented, which include the Federal Insurance Office and the Federal Reserve Board now, too.

Woodall noted that as an “Observer” he benefits from perspective of other Observers, who also would fall off the IAIS rosters under the proposal. Woodall says the other groups help give a by better understanding the implications for industry and consumers of matters under IAIS consideration.

As such, he says he is sympathetic to the goal of ensuring that the IAIS not become wholly detached from those who may be able to provide such important perspectives.

Consumer advocates who recently also were granted Observer status, including those in the U.S. funded through the National Association of Insurance Commissioners (NAIC) are also slamming the proposal by the IAIS.

Center for Economic Justice (CEJ)’s Birny Birnbaum, a seasoned consumer advocate and also a member of FIO’s advisory committee, criticized the unequal access some parties have had  and its potential effects on all stakeholders, including his constituency, consumers, in his Sept. 2 comments.

“We applaud the IAIS proposal to stop ‘pay-to-play’ and allow any interested party to follow and participate in the activities of the IAIS. However, meaningful participation by consumers of insurance in IAIS processes requires the establishment of a formal IAIS consumer participation program reflecting a commitment to obtain consumer input….”

“We note the irony of a request for comment on public participation procedures with a note on page 1 limiting the information to Members and Observers,” Birnbaum added.

Peter Kochenburger, one of the internationally-focused NAIC consumer advocates, and an insurance law professor at University of Connecticut where he  is executive director of the Law School’s Insurance Law Center, said he agrees with the serious concerns state regulators, insurers and trade associations that the IAIS draft procedures would greatly limit stakeholder involvement.  

“Closing most meetings to outside observers reverses the presumption of openness and transparency, and doesn’t speed up any processes – allowing stakeholders to observe proceedings does not mean IAIS working groups must have public comment periods, or even interact with stakeholders at these sessions,” Kochenburger said.  “If the IAIS was considered a public deliberative body, its draft procedures would violate many state open meeting laws,” he added.  

Consumer observers are further disadvantaged, though, he said.

“We don’t come with the power and resources of insurers and other stakeholders; if we are listened to it is not because of our market share in a country, but the quality of ideas, and commitment and experience in consumer (policyholder) protection.  Our credibility and therefore our effectiveness often depends on speaking publicly at hearings and committees and being able to communicate directly with supervisors.  Much of this will be lost, along with the opportunity to meet consumer observers from other countries, who will now have equally minimal opportunities to meet in person,” Kochenburger said.

The proposed procedures will reduce the opportunity for contributions by closing meetings that once were open, says Property Casualty Insurers Association (PCI)  of America’s Dave Snyder, a long-time Observer.

The general rule in the proposal is that meetings will be closed but guests may be invited in at the discretion of the IAIS.

“This is the most fundamental of all flaws in the new procedures. The reverse should be the case, especially when the role of IAIS, as noted by the paper, has significantly increased,” stated Snyder, who says PCI strongly agrees with the remarks of the NAIC (comments here), which trumpets transparency and stakeholder participation for their own sake and as a means to increase the likelihood of acceptance and overall efficiency.

Snyder welcomed open Executive Committee sessions  but said these would not  compensate for closing other meetings and closing meetings combined with inviting “guests” into them.

Observers have decried  the proposed policy not only because it will change the dynamics  of interaction but because it comes at a critical time–the IAIS is not a sleepy organization leased a few desks by a banking oversight body in Basel, anymore.

A global insurance capital standard by 2016 for globally active insurance groups is under development, with expected  implementation by 2019, alongside the 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.

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.

International organizations such as the International Actuarial Association, the World Federation of Insurance Intermediaries and Insurance Europe are also Observers.

Right now, all eyes are on 21st Annual Conference of the IAIS in Amsterdam, October 23- 24, 2014. The theme of IAIS 2014 will be: ’Enhancing policyholder protection and financial stability through governance and risk management’. The group will decide then how to proceed. See: http://www.iais2014.org/
However, the American Council of Life Insurers (ACLI) warns, “that the IAIS should refuse to become an ivory tower bureaucratic elite,” by instead continuing inclusive interaction with diverse stakeholder groups with… those who may not agree on approach but who have the same objectives. “This is how you will be prepared for the next crisis and not the last one,” stated the ACLI comments, written by Robert Neill, formerly of FIO.