Category Archives: Regulation

Insurance Regulators Meet

Something to keep an eye on is the National Association of Insurance Commissioners’ (NAIC) Spring National meeting held in San Diego, California the first half of this week. One key matter up for consideration is the NAIC’s revised climate risk disclosure survey proposal. The draft survey requires insurers to answer generalized questions about the risks posed by climate change and the actions they are taking in response to their understanding of climate change risks. It is designed to help regulators measure the impact of climate change on policyholders and insurer operations. We understand the latest revised draft would no longer require that disclosure of climate change risks be included as part of an insurer’s Financial Annual Statement (FAS) due to industry concerns about public disclosure requirements and potential litigation exposure. If the survey is adopted at the meeting it would be effective in 2010 for the 2009 reporting year. Check out I.I.I. information on climate change and insurance.  

Top Insurance Complaints 2008

Delays (19.1 percent), denial of claims (18.4 percent) and unsatisfactory settlement offers (14.2 percent) were once again the top three reasons consumers filed formal complaints against their insurance companies in 2008, according to data just released by the National Association of Insurance Commissioners (NAIC). Premium/insurance rating issues (4.7 percent) and policy cancellations (4.0 percent) rounded out the top five, regulators said. By type of coverage, the top three complaints in 2008 were: accident & health (36.9 percent); auto (36.7 percent); and homeowners (11.8 percent). The good news is that the total number of complaints declined for the fifth consecutive year in 2008. A total of 195,669 confirmed consumer complaints on insurers were reported via the NAIC’s Complaint Database System (CDS) in the 2008 calendar year. States voluntarily report “closed† complaints via the CDS. A closed complaint is a complaint that has been investigated and resolved to the satisfaction of the state or jurisdiction in which it is filed.  Ã‚  

Insurance Regulatory Moves

The future shape of insurance regulation in the United States is one of many topics that elicit a wide range of views within the industry. So insurers will be closely monitoring the  progress of a revised insurance regulatory bill, the National Insurance Consumer Protection and Regulatory Modernization Act, which is expected to be introduced in the House next week. Sponsored by Rep. Melissa Bean, D-Ill., and Rep. Ed Royce, R-Calif., the bill would create a national office of insurance regulation (OIR). It would also call for a new systemic risk regulator and strengthened consumer protection. For more on this story, check out February 11 online articles at Business Insurance and at National Underwriter. Check out further I.I.I. information on regulatory modernization and the optional federal charter (OFC).  

Financial Crisis Advisory Group to Meet

The first meeting of the Financial Crisis Advisory Group (FCAG), set up jointly by the International Accounting Standards Board (IASB) and the U.S. Financial Accounting Standards Board (FASB) to consider financial reporting issues arising from the global financial crisis, will take place in London January 20. Yes, that’s inauguration day here in the U.S. Among the issues the group will look into are the findings of the recent Securities and Exchange Commission’s (SEC) study on Fair Value Accounting Standards (a.k.a. mark-to-market accounting). Meanwhile, an organization of major insurers and reinsurers  has said that fair value accounting measurements were a powerful accelerant to the worldwide credit crisis. In a December 4, 2008 comment letter to Robert Herz, FASB Chairman, the Group of North American Insurance Enterprises (GNAIE) said the application of fair value accounting measurements to an inactive, illiquid and disorderly market for structured credit products helped fuel the worldwide credit crisis. Check out an I.I.I. update on proposed international accounting standards.

TVA Coal Ash Spill Hearing

As reported in the Wall Street Journal today Congress will hold a hearing on the December 22, 2008,  coal ash spill from a retention pond operated by a Tennessee Valley Authority (TVA) electricity generating plant  near Kingston, Tennessee. A number of homes were damaged in the spill which covered 275 acres with 5.4 million cubic yards of coal ash. It has been described as potentially the largest environmental disaster in the U.S. Today’s oversight hearing is before the Senate Committee on Environment and Public Works. Insurers are reported to have little exposure to the spill cleanup as noted in National Underwriter’s January 6 online article by Mark Ruquet. However, it is likely that legal action following the event will add to its cost. On December 30, 2008,  a group of landowners filed a lawsuit in a state court seeking $165 million from the TVA in damages related to the spill, for example. Environmental groups are calling for the Environmental Protection Agency (EPA) to classify coal ash as a hazardous waste and for the immediate inspection and monitoring of all toxic coal ash storage and disposal units.

Congressional Hearing on Madoff Scheme

Bernard Madoff’s alleged Ponzi scheme and the need for regulatory reform will be the subject of a hearing today before the House Committee on Financial Services. Just to recap, the Wall Street financier and former Nasdaq chairman was arrested December 11, 2008, charged with a $50 billion investor fraud – possibly the largest ever committed by a single individual. All indications are that the scheme’s collapse will fuel litigation on a number of fronts. In fact the D&O Diary has already created a running list of Madoff Investor and Feeder Fund Litigation. On January 14 Nera Economic Consulting is sponsoring a Securities Docket webcast that will address critical questions from this event, such as how much money has been lost and what avenues of possible recovery exist. Also check out I.I.I. background info on the liability system.  

Credit Scoring Resources

The Federal Trade Commission (FTC) decision to order nine homeowners insurers to provide information on the use and effect of credit-based insurance scores in homeowners insurance is a reminder of the continuing need for insurers to explain why they use credit information in personal lines underwriting and exactly how it works. The FTC is seeking the data to complete a study of credit-based insurance scores and homeowners insurance, as required by the Fair and Accurate Credit Transactions Act of 2003. Insurance Information Institute (I.I.I.) background information on credit scoring is available online. The following responses to the FTC have been issued by the American Insurance Association (AIA), the Property Casualty Insurers Association of America (PCI) and the National Association of Mutual Insurance Companies (NAMIC).  

California Climate Plan Set for Approval

In Sacramento today the California Environmental Protection Agency’s (EPA) Air Resources Board is expected to adopt a plan that will cut state greenhouse gas emissions to 1990 levels by 2020. The plan was mandated under the California Global Warming Solutions Act of 2006 (Assembly Bill 32) signed into law by Governor Schwarzenegger. If approved, the new regime will hold companies doing business in the state accountable for the emissions they produce and introduce new fees and reporting requirements. It includes a cap-and-trade program that would allow businesses to seek out cost-effective emission reduction strategies. Individuals and households will also have to take steps to consider climate change at home, at work, and in their recreational activities. An analysis projects the economic benefits of the climate plan to California are many, including: increased economic production of $33 billion; increased overall gross state product of $7 billion; increased overall personal income by $16 billion; increased per capita income of $200; increase jobs by more than 100,000. Check out the I.I.I. issues update on climate change and insurance.

Reinsurance Reform Framework Moves Ahead

After years of debate on reinsurance regulation in the United States, the National Association of Insurance Commissioners (NAIC) meeting over the weekend brought adoption of a proposal that will reform and modernize the current system of reinsurance regulation. Among other things, the new framework would reduce collateral requirements for non-U.S. based reinsurers enabling well-capitalized highly rated reinsurers to post collateral on a sliding scale from 10 to 100 percent. (This step  had been  proposed by New York insurance  superintendent Eric Dinallo last year). Until now, non-U.S. reinsurers have had to post collateral equal to 100 percent of their share of policyholder claims. While the specifics have yet to be worked out, the collateral plan is a key step toward what many regard as simply leveling the playing field between non-U.S. and U.S. reinsurers in what is an international business. However, from insurers’ perspective concerns remain over solvency and reinsurance recoverables. The NAIC proposal also establishes a new framework for state-based reinsurance regulation based on the concepts of supervisory recognition, single-state licensure for U.S. reinsurers and single-state certification for non-U.S. reinsurers from approved jurisdictions. What are your thoughts on the proposal? Check out the NAIC for further information. Check out I.I.I. information on reinsurance.  

The Case of Nanotechnology

We look across the Pond today  to a posting on the Lloyd’s risk blog by Trevor Maynard, head of the emerging risks team. It highlights the findings of a new report by the UK’s Royal Commission on the challenges and benefits arising from nanotechnology. The report points to areas of concern about governance and regulation of nanomaterials, such as “the profound ignorance and uncertainty about the behavior of some types of nanomaterial in the environment or the risks they pose for human health.† The Commission suggests that existing regulatory frameworks will need to be adapted to deal with nanomaterials. Here in the United States, the FDA’s Nanotechnology TaskForce report last year recommended the agency consider developing guidance to address the benefits and risks of drugs and medical devices using nanotechnology. As we’ve noted before, new technologies bring with them inherent benefits as well as risks. More than $1.1 trillion of products across a broad range of sectors incorporated nanotechnology in 2007, and this impact could extend to nearly $4 trillion by 2015, according to market research firm Lux Research. Food, drugs, medical devices and cosmetics are just some of the products that may incorporate nanomaterials. On both sides of the Atlantic, the regulation of nanotechnology is an evolving area that insurers will be monitoring.