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Legal Ease by Scott Sinder Small Talks

The...NAIC...inches...forward...slowly ..very...very...slowly. State...regulators...talk..a...lot... but...do...little.

By  Scott Sinder

Groundhog Day came again at this fall’s NAIC National Meeting. Regulators and their hangers-on gathered at the same Washington hotel that has hosted previous meetings and talked all the usual issues: accounting rules, actuarial standards, application requirements, product filings, capital adequacy and financial accreditation—the whole works.

They “reviewed items previously deferred,” approved minutes, considered reports, “reviewed outstanding issues previously addressed,” “reviewed outstanding tentative positions” and approved charges. They met in subgroups, working groups, committees and task forces.

They talked and talked and talked.

The meetings can be mind numbing. However, there’s usually something of interest: producer licensing, surplus lines, natural catastrophe/climate change, risk retention groups, and the more mundane, but nonetheless important, issue of the NAIC budget. So let’s explore.

Producer licensing: The NAIC has created a coalition of regulators and producer representatives (including The Council) to determine what needs to be done to fix problems plaguing the licensing system. Regulators have stated their desire to push for full reciprocity and uniformity in producer licensing and to rid the system of unnecessary regulatory burdens facing producers—and we are seeing some movement!

Coalition Chair Roger Sevigny, the New Hampshire commissioner and NAIC vice president, suggests regulators consider dropping the entity licensure requirement for producers—a highly controversial start. Sevigny is pushing his colleagues to address the secretary of state registration requirements found in most states. Under the Gramm Leach Bliley Act, these cannot be a prerequisite to licensure.

Surplus lines: The NAIC working group dedicated to the issue met briefly by conference call the week prior to the meeting and adopted a “charge” for 2008 to “consider a uniform method of allocating surplus lines and independently procured insurance premium tax on multi-state risks.” What this means remains to be seen.

The group’s assigned tasks do not even mention the non-tax regulatory burdens imposed on multi-state placements. Frankly, this simply bolsters The Council’s argument in support of the Non-Admitted and Reinsurance Reform Act pending on Capitol Hill. It is clear state regulators are unwilling or unable to take action without the pressure of federal intervention.

A non-regulator group, which includes some regulators and brokers, met in Washington, D.C., to talk. The surplus lines offices, with input from the industry and regulatory participants, have drafted an interstate compact dealing with surplus lines tax allocation issues and some redundant regulation faced by surplus lines brokers placing multi-state risks. Some state surplus lines offices and the regulators in the group see the interstate compact as an alternative to federal legislation. Others, including NAPSLO, see the federal bill as critical to getting the states to move on the issue.

The group does not plan to push the NAIC to adopt the compact—at least not initially. Rather, it intends to work through the National Conference of Insurance Legislators.

Natural catastrophe: South Carolina Insurance Director Scott Richardson and The Travelers made the most interesting presentations on natural catastrophe proposals. The South Carolina proposal would determine wind/flood losses based on a pre-set allocation. The Travelers proposal would create a special coastal zone from Texas to Maine for homeowner coverage. Both the federal government and the states would be involved in oversight of the marketplace in the coastal zone. The NAIC Catastrophe Working Group has a hearing planned for this month’s meeting on the impact of financial rating agencies on catastrophe insurance markets.

Reinsurance: The NAIC is putting together a proposal for single-state licensing of U.S. reinsurers and is establishing a reinsurance supervision review department at the NAIC. Still in its early stages, the proposal is intended to enhance the U.S. reinsurance regulatory structure and create a framework for mutual recognition between the U.S. and other nations.

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