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A Reinforced Commitment: Insurance Regulatory Modernization Action Plan (click here for PDF version)
In March 2000, the National Association of Insurance Commissioners put forth our Statement of Intent – The Future of Insurance Regulation. Working in our individual states and collectively through the NAIC, we have made tremendous progress. We are proud of what has been accomplished, but believe more dramatic advances in unifying state regulatory processes are needed to further improve insurance marketplace efficiencies and to protect the needs of insurance consumers in the 21st Century. The National Association of Insurance Commissioners is renewing our commitment to modernizing the state-based system of insurance regulation. As committed in our original Statement of Intent, our primary goal is to protect insurance consumers, which we must do proactively and aggressively. We also recognize that consumers and the marketplace are best served by efficient, market-oriented regulation of the business of insurance. The insurance industry must operate on a financially sound basis in order to manage risk and to provide financial protection to families and businesses. Our Nation’s economy depends on the insurance industry’s ability to effectively manage risk. A solid regulatory framework provides for efficient, safe, fair and stable insurance markets. Like other sectors of the financial services marketplace, the insurance industry and its products are changing in response to the wants and needs of consumers. Increasingly the insurance industry is viewed in a global context. Advances in technology facilitate the opportunity to offer new insurance products thus providing consumers with greater choice and enabling them to become better informed as to those choices. States have met the challenge of regulating a national and international business on a fifty state basis using a number of innovative mechanisms. The NAIC Financial Regulation and Accreditation Standards Program has served the insurance industry and consumers well for the past fourteen years. The program has ensured coherent financial solvency oversight and has proven to be a highly effective approach within the state-based system. As licensing states substantially defer to the insurer’s home state for nearly all aspects of financial and solvency regulation, the state solvency system promotes intelligent and efficient use of finite regulatory resources. By focusing on those insurers that pose solvency risks, this system has strengthened protection of policyholders and benefited both the insurance industry and policyholders by minimizing regulatory costs. While NAIC members continue to seek greater effectiveness and improvements to the financial standards of the program, it can serve as a template for market based regulatory reforms. Using this state-based solvency system as a model, the members of the NAIC will design and implement similar uniform standards for producer licensing, market conduct oversight, and rate and form regulation. In addition, the NAIC will expand the existing financial regulation framework to institute true uniformity and reciprocity in company licensing requirements, and further enhance financial condition examinations, and changes of an insurer’s control during mergers and acquisitions. PRINCIPLES AND GOALS The following is a declaration of NAIC principles and goals reflecting our commitment to continuing to modernize insurance regulation: I. Consumer Protection “An open process … access to information and consumers’ views … our primary goal is to protect insurance consumers, which we must do proactively and aggressively, and provide improved access to a competitive and responsive insurance market.” II. Market Regulation “Market analysis to assess the quality of every insurer’s conduct in the marketplace, uniformity, and interstate collaboration … the goal of the market regulatory enhancements is to create a common set of standards for a uniform market regulatory oversight program that will include all states.” III. Speed-to-Market for Insurance Products “Interstate collaboration and filing operational efficiency reforms … state insurance commissioners will continue to improve the timeliness and quality of the reviews given to insurers’ filings of insurance products and their corresponding advertising and rating systems.” IV. Producer Licensing“Uniformity of forms and process … the NAIC’s broad, long-term goal is the implementation of a uniform, electronic licensing system for individuals and business entities that sell, solicit or negotiate insurance.” V. Insurance Company Licensing “Standardized filing and baseline review procedures…the NAIC will continue to work to make the insurance company licensing process for expanding licensure as uniform as appropriate to support a competitive insurance market.” VI. Solvency Regulation “Deference to lead states … state insurance regulators have recognized a need to more fully coordinate their regulatory efforts to share information proactively, maximize technological tools, and realize efficiencies in the conduct of solvency monitoring.” VII. Change In Insurance Company Control "Streamline the process for approval of mergers and other changes of control."NAIC members understand that these goals present difficult challenges; however, with the active participation of state governors and state legislators, industry and consumer advocates, and state insurance department regulators, we are confident NAIC member states will achieve these goals in the near term. ACTION PLAN I. Consumer Protection An open process … access to information and consumers’ views … our primary goal is to protect insurance consumers, which we must do proactively and aggressively, and provide improved access to a competitive and responsive insurance market. The NAIC members will keep consumer protection as their highest priority by: style="mso-spacerun: yes"> (1) Providing NAIC access to consumer representatives and having an active organized strategy for obtaining the highly valued input of consumer representatives in the proceedings of all NAIC committees, task forces, and working groups; (2) Developing disclosure and consumer education materials, including written and visual consumer alerts, to help ensure consumers are adequately informed about the insurance market place, are able to distinguish between authorized an unauthorized insurance products marketed to them, and are knowledgeable about state laws governing those products; (3) Providing an enhanced Consumer Information Source (CIS) as a vehicle to ensure consumers are provided access to the critical information they need to make informed insurance decisions; (4) Reviewing and assessing the adequacy of consumer remedies, including state arbitration laws and regulations, so that the appropriate forums are available for adjudication of disputes regarding interpretation of insurance policies or denials of claims; and (5) Developing and reviewing consumer protection model laws and regulations to address consumer protection concerns. II. Market Regulation Market analysis to assess the quality of every insurer’s conduct in the marketplace, uniformity, and interstate collaboration … the goal of the market regulatory enhancements is to create a common set of standards for a uniform market regulatory oversight program that will include all states. The NAIC has established market analysis, market conduct, and interstate collaboration as the three pillars on which the states’ enhanced market regulatory system will rest. The NAIC recognizes that the marketplace is generally the best regulator of insurance-related activity. However, there are instances where the market place does not properly respond to actions that are contrary to the best interests of its participants. A strong and reasonable market regulation program will discover these situations, thereby allowing regulators to respond and act appropriately to change company behavior. Market Analysis While all states conduct market analysis in some form, it is imperative that each state have a formal and rigorous market analysis program that provides consistent and routine reports on general market problems and companies that may be operating outside general industry norms. To meet this goal: (1) Each state will produce a standardized market regulatory profile for each “nationally significant” domestic company. The creation of these profiles will depend upon the collection of data by each state and each state’s full participation in the NAIC’s market information systems and new NAIC market analysis standards; and (2) Each state will adopt uniform market analysis standards and procedures and integrate market analysis with other key market regulatory functions. Market Conduct States will also implement uniform market conduct examination procedures that leverage the use of automated examination techniques and uniform data calls; and (1) States will implement uniform training and certification standards for all market regulatory personnel, especially market analysts and market conduct examiners; and (2) The NAIC’s Market Analysis Working Group will provide the expertise and guidance to ensure the viability of uniform market regulatory oversight while preserving local control over matters that directly affect consumers within each state. Interstate Collaboration The implementation of uniform standards and enhanced training and qualifications for market regulatory staff will create a regulatory system in which states have the confidence to rely on each other’s regulatory efforts. This reliance will create a market regulatory system of greater domestic deference, thus allowing individual states to concentrate their market regulatory efforts on issues that are unique to their individual market place conditions. (1) Each state will monitor its “nationally significant” domestic companies on an on-going basis, including market analysis and appropriate follow up to address any identified problems; (2) Market conduct examinations of “nationally significant” companies performed by a non-domestic state will be eliminated unless there is a specific reason that requires a targeted market conduct examination; and (3) The Market Analysis Working Group will assist states to identify market activities that have a national impact and provide guidance to ensure that appropriate regulatory action is being taken against insurance companies and producers and that general market issues are being adequately addressed. This peer review process will become a fundamental and essential part of the NAIC’s market regulatory system. III. class="style1" style='font:7.0pt "Times New Roman"'> “Speed-to-Market” for Insurance Products Interstate collaboration and filing operational efficiency reforms … state insurance commissioners will continue to improve the timeliness and quality of the reviews given to insurers’ filings of insurance products and their corresponding advertising and rating systems. Insurance regulators have embarked on an ambitious ‘Speed-to-Market Initiative’ which covers the following four main areas: (1) Integration of multi-state regulatory procedures with individual state regulatory requirements; (2) Encouraging states to adopt regulatory environments that place greater reliance on competition for commercial lines insurance products; (3) Full availability of a proactively evolving System for Electronic Rate and Form Filing (known as ‘SERFF’) that includes integration with operational efficiencies (best practices) developed for the achievement of speed-to-market goals; and (4) Development and implementation of an interstate compact to develop uniform national product standards and provide a central point of filing. Integration of Multi-state Regulatory Procedures It is the goal that all state insurance departments will be using the following regulatory tools by December 31, 2008: (1) Review standards checklists for insurance companies to verify the filing requirements of a state before making a rate or policy form filing; (2) Product requirements locator tool, which is already in use, will be available to assist insurers to locate the necessary requirements of the various states to use when developing their insurance products or programs for one or multiple-state markets; (3) Uniform product coding matrices, already developed, will allow uniform product coding so that insurers across the country can code their policy filings using a set of universal codes without regard for where the filing is made; and (4) Uniform transmittal documents to facilitate the submission of insurance products for regulatory review. The uniform transmittal document contains information that is necessary to track the filing through the review process and other necessary information. The goal is that all states adopt it for use on all filings and databases related to filings by December 31, 2003. Adoption of Regulatory Frameworks that Place Greater Reliance on Competition States will continue to ensure that the rates charged for products are actuarially sound and are not excessive, inadequate or unfairly discriminatory. To the extent feasible, for most markets, states recognize that competition can be an effective element of regulation. While recognizing that state regulation is best for insurance consumers, it also recognizes that state regulation must evolve as insurance markets change. Full availability of a proactively evolving System for Electronic Rate and Form Filing (SERFF) SERFF is a one-stop, single point of electronic filing system for insurance products. It is the goal of state insurance departments to be able to receive product filings through SERFF for all major lines and product types by December 2003. style="mso-spacerun: yes"> We will integrate all operational efficiencies and tools with the SERFF application in a manner consistent with our Speed-to-Market Initiatives and the recommendations of the NAIC’s automation committee. Implementation of an Interstate Compact Many products sold by life insurers have evolved to become investment-like products. Consequently, insurers increasingly face direct competition from products offered by depository institutions and securities firms. Because these competitors are able to sell their products nationally, often without any prior regulatory review, they are able to bring new products to market more quickly and without the expense of meeting different state requirements. Since policyholders may hold life insurance policies for many years, the increasing mobility in society means that states have many consumers who have purchased policies in other states. This reality raises questions about the logic of having different regulatory standards among the states. The Interstate Insurance Product Regulation Compact will establish a mechanism for developing uniform national product standards for life insurance, annuities, disability income insurance, and long-term care insurance products. It will also create a single point to file products for regulatory review and approval. In the event of approval, an insurer would then be able to sell its products in multiple states without separate filings in each state. This will help form the basis for greater regulatory efficiencies while allowing state insurance regulators to continue providing a high degree of consumer protection for the insurance buying public. State insurance regulators will work with state law and policymakers with the intent of having the Compact operational in at least 30 states or states representing 60% of the premium volume for life insurance, annuities, disability income insurance and long-term care insurance products entered into the Compact by year-end 2008. IV. Producer Licensing Requirements Uniformity of forms and process … the NAIC’s broad, long-term goal is the implementation of a uniform, electronic licensing system for individuals and business entities that sell, solicit or negotiate insurance. The states have satisfied GLBA’s licensing reciprocity mandates and continue to view licensing reciprocity as an interim step. Our goal is uniformity. Building upon the regulatory framework established by the NAIC in December of 2002, the NAIC’s members will continue the implementation of a uniform, electronic licensing system for individuals and business entities that sell, solicit or negotiate insurance. While preserving necessary consumer protections, the members of the NAIC will achieve this goal by focusing on the following five initiatives: (1) Development of a single uniform application; (2) Implementation of a process whereby applicants and producers are required to satisfy only their home state pre-licensing education and continuing education (CE) requirements; (3) Consolidation of all limited lines licenses into either the core limited lines or the major lines; (4) Full implementation of an electronic filing/appointment system; and (5) Implementation of an electronic fingerprint system. In accomplishing these goals, the NAIC recognizes the important and timely role that state and federal legislatures must play in enacting necessary legislation. National Insurance Producer Registry (NIPR) Through the efforts of NIPR, major steps have been taken to streamline the process of licensing non-residents and appointing producers, including the implementation of programs that allow electronic appointments and terminations. Other NIPR developments helping to facilitate the producer licensing and appointment process include: (1) Use of a National Producer Number, which is designed to eliminate sole dependence on using social security numbers as a unique identifier; (2) Acceptance of electronic appointments and terminations or registrations from insurers; and V. Insurance Company Licensing Standardized filing and baseline review procedures…the NAIC will continue to work to make the insurance company licensing process for expanding licensure as uniform as appropriate to support a competitive insurance market. Except under certain limited circumstances, insurance companies must obtain a license from each state in which they plan to conduct business. In considering licensure, state regulators typically assess the fitness and competency of owners, boards of directors, and executive management, in addition to the business plan, capitalization, lines of business, market conduct, etc. The filing requirements for licensure vary from state to state, and companies wishing to be licensed in a number of states have to determine and comply with each state’s requirements. In the past three years, the NAIC has developed, and all states have agreed to participate in, a Uniform Certificate of Authority Application process that provides significant standardization to the filing requirements that non-domestic states use in considering the licensure of an insurance company. In its commitment to upgrade and improve the state-based system of insurance regulation in the area of company licensing, the NAIC will: (1) Maximize the use of technology and pre-population of data needed for the review of application filings; (2) Develop a Company Licensing Model Act to establish standardized filing requirements for a license application and to establish uniform licensing standards; and (3) Develop baseline licensing review procedures that ensure a fair and consistent approach to admitting insurers to the marketplace and that provide for appropriate reliance on the work performed by the domestic state in licensing and subsequently monitoring an insurer’s business activity. As company licensing is adjunct to a solvency assessment, the members of the NAIC will consider expanding the Financial Regulation and Accreditation Standards Program to incorporate the licensing and review requirements as appropriate. This action will assure appropriate uniformity in company licensing and facilitate reciprocity among the states. As much of this work is well underway, the NAIC will implement the technology and uniform review initiatives, and draft the model act by December 2004. VI. Solvency Regulation Deference to lead states … state insurance regulators have recognized a need to more fully coordinate their regulatory efforts to share information proactively, maximize technological tools, and realize efficiencies in the conduct of solvency monitoring Deference to “Lead States” Relying on the concept of “lead state” and recognizing insurance companies by group, when appropriate, the NAIC will implement procedures for the relevant domestic states of affiliated insurers to plan, conduct and report on each insurer’s financial condition. Financial Examinations In regard to financial examinations, many insurers are members of a group or holding company system that has multiple insurers and that may have multiple states of domicile. These affiliated insurers often share common management along with claims, policy and accounting systems, and participate in the same reinsurance arrangements. Requirements for coordination of financial examinations will be set forth in the NAIC Financial Condition Examiners Handbook. To allow time for the states to adjust examination schedules and resources, such coordination will be phased in over the next 5 years, with the goal of full adherence to the Handbook’s guidance for examinations conducted as of December 2008. Insolvency Model Act The NAIC will promote uniformity by reviewing the Insolvency Model Act, maximizing use of technology, and developing procedures for state coordination of imminent insolvencies and guaranty fund coverage. The Financial Regulation Standards and Accreditation Committee will consider the requirements no later than January 1, 2008. VII. Changes of Insurance Company’s Control Streamline the process for approval of mergers and other changes of control. Coordination Using “Lead States” Regulatory consideration of the acquisition of control or merger of a domestic insurer is an important process for guarding the solvency of insurers and protecting current and future policyholders. At the same time, NAIC members realize that these transactions are time sensitive and the process can be daunting when approvals must be obtained in multiple states. As a result, states will enhance their coordination and communication on acquisitions or mergers of insurers domiciled in multiple states by designing a system through which these multi-state reviews are coordinated by one or more “lead” states. Form A Database Insurers are required to file for approval on documents referred to as Form A filings when mergers or acquisitions are being considered. The NAIC has created a database to track these filings so that this information is available to all state regulators. Usage will be monitored to ensure that all states use the application to improve coordination of Form A reviews and to alert state regulators to problem filings. The Form A Review Guide and Form A Review Checklist, which contain procedures to be utilized when reviewing a Form A Filing, will be enhanced and incorporated into the existing NAIC Financial Analysis Handbook as a supplement. NAIC members will work on amending the Accreditation Program to include the Form A requirements to further promote stronger solvency standards and state coordination, as well as an efficient process for our insurers. The Form A requirements will be targeted for incorporation into the Accreditation Program no later than January 1, 2007. Integrate Policy Form Approval and Producer Licensing into the Merger and Acquisition Process The NAIC members will develop procedures for the seamless transfer of policy form approvals and producer appointments to take place contemporaneously with the approval of mergers or acquisitions where appropriate. We will begin developing and testing these procedures through pilot programs in 2003 and fully incorporate them system wide by 2006. |
