Property and Casualty Insurance (C) Committee
March 31, 2008

The Property and Casualty Insurance (C) Committee met on Monday, March 31, 2008.

During this meeting, the Property and Casualty Insurance (C) Committee:

• Appointed Working Groups as follows:
• Advisory Organization Examination Protocol Working Group;
• Catastrophe Insurance Working Group;
• Catastrophe Reserve Working Group ;
• Earthquake Study Group;
• Consumer Guides Working Group;
• Crop Insurance Working Group;
• Terrorism Insurance Implementation Working Group; and
• Title Insurance Issues Working Group.
• Heard an update on the mediation regarding issues surrounding the implementation of ACORD Form 28. This issue relates to concerns that mortgage bankers have over their ability to rely on certificates of insurance as adequate proof of coverage related to mortgage requirements. A mediator has been selecting and a time and place for the mediation to begin should occur shortly.
• Discussed recent federal legislation dealing with the use of credit reports. There are many states that have enacted laws and regulations relating to the use of credit reports by insurance companies. Although there are other states considering the use of credit reports, Congress is as well. Each state was asked to submit comments within 10 days on the implementation concerns of the technical aspects from their states perspective for NAIC staff to compile. The Committee will coordinate with the Market Regulation and Consumer Affairs (D) Committee as necessary.
• Adopted the report of the Surplus Lines (C) Task Force. The Task Force had been requested by the NAIC Government Relations Leadership Council to make recommendations on an appropriate NAIC response to the pending federal legislation of House Bill 1065 which proposes to effectively set up a home-state deference system where the home state of the insured is the sole regulator for surplus lines. The consensus of a survey of the states indicated the legislation would be good and be more effective as it is a national product but there are some reservations. A response will be prepared and the Task Force believes it will need to meet at the Summer National Meeting.
• Adopted the report of the Casualty Actuarial and Statistical (C) Task Force. The Task Force adopted conference call minutes which included a reinsurance risk transfer survey to be sent to companies, a Medical Professional Liability Closed Claim Reporting Model Law, revised 2008 charges, and a recommendation to the Blanks (E) Working Group regarding the multi-peril line of business definition. In addition, the Task Force adopted proposed changes to the NAIC Loss Cost Memorandum – Workers’ Compensation and the NAIC Expense Constant Supplement used to calculate a company’s loss cost multiplier with expense constants. These changes which will be forwarded to the Operational Efficiencies (EX) Working Group for their consideration. And, it adopted the 2006 Commercial Lines Competition Database Report. The Task Force will consider developing changes t the NAIC’s Catastrophe Modeling Handbook.
• The Committee adopted the Medical Professional Liability Closed Claim Reporting Model Law. In adopting the model, NAIC staff was directed to incorporate language in Section 6 regarding the confidentiality provisions so each jurisdiction can consider the confidentiality issues of its jurisdiction. The drafting note is to appear in an introductory note to the “purpose” of the model.
• Heard a presentation by Gregory Squires ( George Washington University) suggesting that insurance companies be required to disclose geocoded data for property insurance. He would have the data be reported each year. The data would include race, gender and income for the type and amount of insurance requested, the premiums charged, and the disposition of all applications; whether approved, denied, referred to FAIR Plan and the reason for not approving the applicant. Professor Squires believed that disclosure of the information would be beneficial in determining the availability of insurance in urban communities. Currently, only eight states require any disclosure and only four of these states require the discloser to be made public. The information is already required of home mortgage lenders under the federal Home Mortgage Disclosure Act (HMDA). The Committee will coordinate with the Market Regulation and Consumer Affairs (D) Committee to determine the best practical approach to the issue and the amendment of 2008 Charges if necessary.
• Adopted the Workers’ Compensation (C) Task Force report. Appointed Working Groups as follows:
• Large Deductible Study Implementation (C) Working Group;
• NAIC/IAIABC Joint (C) Working Group; and
• Professional Employer Organization (C) Working Group.
• The Workers’ Compensation Task Force received the Large Deductible Study Implementation Working Group report stating that efforts continue in drafting its Third Party Administrator Guidelines and in drafting Guidelines for the Filing of Workers’ Compensation Large Deductible Policies & Programs (Large Deductible Guidelines). Received the NAIC/IAIABC Joint Working Group report stating that efforts continue in developing the draft “White Paper on the Determination of Independent Contractor Status for Workers’ Compensation Purposes” (draft Independent Contractor White Paper). The March 24, 2008 draft Independent Contractor White Paper was presented during the meeting. It was explained that this draft may be ready for adoption by the Working Group prior to the NAIC 2008 Summer National Meeting. It was announced that the next meeting of the Working Group will be held in Austin, Texas on April 12, 2008, during the International Association of Industrial Accident Boards & Commissions (IAIABC) All Committee Conference. Received the Professional Employer Organization Working Group report which stated that its PEO Guidelines Implementation Paper Drafting Group held a conference call on March 25, 2008. During the conference call assignments were made for development of issues to assist states with successful implementation of the adopted NAIC Guidelines for Regulations and Legislation on Workers’ Compensation Coverage for Professional Employer Organization Arrangements (NAIC PEO Guidelines). The development of the paper is considered important due to the complexity of the NAIC PEO Guidelines and the number of challenges regulators face in this area.
• Received the report of the Catastrophe Insurance (C) Working Group. The Working Group learned about the creation of the My Safe Florida Home Program. After the 2004 and 2005 hurricanes inflicted over $33 billion in damages on Florida citizens, the Florida Legislature created the My Safe Florida Home Program. It was designed to help Floridians better protect their property; and save money on insurance premiums. The goal was to provide free inspections to 400,000 homes and provide matching grants up to $5,000 to 35,000 Floridians to encourage them to mitigate against hurricane losses. Funded by a $250 million appropriation that was available from a sales tax windfall that occurred with the building boom following the 2004 and 2005 hurricanes, the program is to sunset in June 2009. The Working Group learned of a wind engineering research project called the RenaissanceRe Wall of Wind. This project replicates a full scale hurricane by subjecting actual structures to severe wind and rain conditions in a laboratory setting to test construction designs, building materials and construction techniques to building construction and retrofitting practices. The Working Group received an update on various federal legislative proposals related to natural disasters. The Working Group learned that the National Flood Insurance Program (NFIP) would sunset in the fall of 2008 and requires Congressional action to extend the program. Proposals have been considered to do that along with some program enhancements such as adding the wind peril and increasing the coverage available from the NFIP. In addition, there are bills proposing mitigation assistance and to establish a blue ribbon panel to discuss the federal government’s role in managing the aftermath of natural disasters. Learned about the NAIC’s involvement in the FBIIC. Led by the Treasury, FBIIC is the group that monitors and stress-tests the financial markets to be sure they are prepared to provide services to the public following a disaster. Recent FBIIC activities include a pandemic flu exercise and regional exercises intended to test regional abilities to react to a Cat 2 hurricane. The Working Group discussed its white paper Natural Catastrophe Risk: Creating a Comprehensive National Plan and decided that it was not ready to be adopted. Several Working Group members requested additional time to improve the white paper. The Working Group would try to hold an extended meeting during the NAIC 2008 Summer National Meeting to finish work on the paper.
• The Committee considered the development of a National Public Catastrophe Model for regulatory use. The NAIC budget process for 2009 will begin soon and the Committee will need to complete a Business and Fiscal Impact Statement if the NAIC were to develop a public model. Regulators should have a model available to them to be consistent and compliment with models that are presented to them; not to replace a model. Birny Birnbaum (Center for Economic Justice) suggested as an alternative that the Committee could identify key items that go into the model with key assumptions for each item so the Committee could ask the modelers to develop based upon those assumptions.
• Adopted the report of the Terrorism Insurance Implementation Working Group. The Working Group learned about the status of the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA). President Bush signed TRIPRA into law on December 26, 2007. Major changes include: revising the definition of a certified act of terrorism to eliminate the requirement that the individual(s) are acting on behalf of any foreign person or foreign interest; extending the program through December 31, 2014; requiring clear and conspicuous notice to policyholders of the existence of the $100 billion cap; fixing the Insurer Deductible at 20% of an insurer’s direct earned premium, and the federal share of compensation at 85% of insured losses that exceed insurer deductibles; fixing the program trigger at $100,000,000 for all additional program years; requiring the U.S. Treasury to promulgate regulations for determining pro-rata shares of insured losses under the program when insured losses exceed $100 billion; requiring various studies by the Comptroller General and the President’s Working Group on Financial Markets; and accelerating the timing of the mandatory recoupment of the federal share through policyholders surcharges. The Working Group adopted the proposed model bulletin with a recommendation that all states promulgate it as soon as President Bush signs the Act. This was significant in the speed in which states came together in adopting these items as the Committee met and approved these items in between the time the House and Senate adopted the act and before President Bush signed the act on Dec. 26, 2007. The Working Group met by conference call on March 13, 2008 in a regulator to regulator call with representatives of the Treasury’s Terrorism Risk Insurance Program Office. The call was conducted in accordance with item 8 and 9 of the NAIC’s Open Meetings Policy and in accordance with Section 104(c) of the TRIPRA. Discussions involved the TRIP Office’s development of a regulation related to procedures for determining the pro rata share of insured losses under the program when insured losses exceed $100 billion.
• Received a report of the Crop Insurance (C) Working Group. The Working Group received a background paper on the crop adjuster issue that outlines strategic initiatives that would encourage the states to partner with the RMA to address an issue of mutual concern regarding crop adjuster licensing. The Working Group heard a report on the possible creation of a specific crop adjuster licensing and continuing education program. Craig Witt (Risk Management Agency – RMA) presented information on the RMA and its role in coordination of regulation of crop insurance adjusters. One of the problems with crop adjuster licensing is that most states require a crop adjuster to obtain a Property and Casualty license. As a result, there is no proficiency in handling crop claims and there is a lack of uniformity across the states. Additionally, most states do not require the licensing of insurance company personnel. The RMA is concerned about fraud, waste and abuse. If states are not willing to address the issue, RMA is willing to consider a federal preemption of state insurance laws regarding adjuster licensing. Preemption on a state-by-state basis is also possible. Dr. Laurence Crane (National Crop Insurance Services - NCIS) made a presentation to the Working Group regarding its Crop Adjuster Proficiency Program. The objective of the program is to help adjusters who work for NCIS member insurers to comply with individual state licensing requirements for crop adjusters. Upon successful completion of three exams, an individual will receive a certification card from NCIS that they can take to a state insurance department, pay the state licensing fee, and receive a license to adjust crops in that state. The Working Group received correspondence relating to information sharing concerns between states and the RMA from a recent audit by the Office of Inspector General. Due to the possible preemption of crop insurance adjuster licensing the Working Group plans to have a conference call shortly and believes it is necessary to meet in San Francisco on its own.
• Received a report of the Title Insurance Issues (C) Working Group. The Working Group did not meet this quarter. The important aspects of the Working Group will be to review and revise the Title Insurer Model Act and Title Insurance Agent Model Act; review rebating and kickback concerns to help consumers; review the U.S. Government Accountability Office (GAO) report on title insurance recommendations to determine needs; and to review insurance costs and claim practices. The Working Group plans to have a conference call shortly to set priorities and believes it is necessary to meet in San Francisco. Birny Birnbaum indicated the US Department of Housing and Urban Development (HUD) has recently proposed changes to reform mortgage lending disclosure including title insurance disclosure and he suggested the Working Group review so the NAIC can submit comments before the deadline which he believes is in about 45 days. The material in the HUD proposal includes a review of the title insurance market and the degree of competition to support the title insurance disclosure.
• Adopted the report of the Advisory Organization Examination Protocol (C) Working Group. The Working Group exposed a draft of the Market Regulation Handbook Chapter Twenty-Five, Conducting the Advisory Organization Examination on December 17, 2007. The Working Group continues working on the draft and anticipates a new draft will be exposed in April and to meet via conference call in May. The Working Group also reviewed the Operations/Management standards contained in Chapter 16 of the Market Regulation Handbook to determine the appropriateness of the standards to advisory organizations. A separate review of information systems controls is being conducted for inclusion in Chapter Twenty-Five.
• Received a report of the Consumer Guides Review (C) Working Group. The Working Group reviewed the second draft of A Consumer’s Guide to Homeowners Insurance which was exposed on November 30, 2007. The Working Group is creating a brochure to be no more than three to four pages that includes key points and is arranged into seven sections. A more detailed document would be created to include detailed descriptions of the different homeowner forms and other issues such as an explanation of coinsurance. Separate documents would be created for renters, mobile homes, condominiums and automobile policies. In preparation for the February 26, 2008 conference call, the Working Group exposed a February 14, 2008, draft of A Consumer’s Guide to Automobile Insurance and a January 17, 2008 draft of A Consumer’s Guide to Homeowners Insurance. The automobile draft was completed for comparison to the homeowners brochure to be certain the seven sections would be appropriate for both versions. During the call the Working Group agreed the seven sections will be appropriate. The Working Group is planning to meet via conference call on April 22, 2008, to consider the March 10, 2008, draft of A Consumer’s Guide to Homeowners Insurance. Comments should be submitted by April 11, 2008. The Working Group set a schedule of conference call meetings for the reminder of 2008.
• Heard an update on risk retention activities . A bill is expected to be introduced shortly to amend the Risk Retention Act to include property coverage. Perhaps the NAIC Government Relations Leadership Council will be involved in commenting on the legislation at that time. Last year the Property and Casualty Insurance Committee developed some corporate governance standards for risk retention groups which was referred to the Financial Condition (E) Committee but no action has yet been taken. Apparently the bill to be introduced will include some of these standards. The Committee heard of pending litigation on the proper use of the Risk Retention Act as a contractual liability policy has been written in Montana to provide health insurance for employees.
• Was provided with a copy on a National Conference of Insurance Legislators (NCOIL) adopted model regarding the disclosure of rental vehicle damage waivers.

Action Items:

The Property and Casualty Insurance (C) Committee:

• Appointed the Advisory Organization Examination Protocol Working Group; Catastrophe Insurance Working Group; Catastrophe Reserve Working Group; Earthquake Study Group; Consumer Guides Working Group; Crop Insurance Working Group; Terrorism Insurance Implementation Working Group; and the Title Insurance Issues Working Group.
• Adopted the Casualty Actuarial and Statistical (C) Task Force report including revised 2008 Charges.
• Adopted proposed changes to the NAIC Loss Cost Memorandum – Workers’ Compensation and the NAIC Expense Constant Supplement which will be forwarded to the Operational Efficiencies (EX) Working Group.
• Adopted the 2006 Commercial Lines Competition Database Report.
• Adopted the Medical Professional Liability Closed Claim Reporting Model Law.
• Appointed Working Groups to the Workers Compensation Task Force: Large Deductible Study Implementation (C) Working Group; NAIC/IAIABC Joint (C) Working Group; and the Professional Employer Organization (C) Working Group.
• Adopted a model bulletin containing filing procedures for insurers for compliance with the provisions of Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA).
• Exposed a December 17, 2007, draft of the Market Regulation Handbook Chapter Twenty-Five, Conducting the Advisory Organization Examination.
• Exposed a January 17, and a March 10, 2008, draft of A Consumer’s Guide to Homeowners Insurance.
• Exposed a February 14, 2008, draft of A Consumer’s Guide to Automobile Insurance.