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. “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:
- Use of a National Producer Number, which is designed to
eliminate sole dependence on using social security numbers
as a unique identifier;
- Acceptance of electronic appointments and terminations
or registrations from insurers; and
- Use of Electronic Funds Transfer for payment of fees.
The goal is to have full state implementation of the services
provided by NIPR by December of 2006.
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. |