Daily News: Opening Session

Declarations & Decisions

It’s fitting we’re gathering here in Philadelphia for our Summer National Meeting. This birthplace of American democracy has hosted some of the most important meetings in our nation’s history – most significantly, the signing of the Declaration of Independence some 241 years ago. Philadelphia is also the home to one of our nation’s founding fathers, Benjamin Franklin.

We all know Ben Franklin as a diplomat, statesman, politician, author, publisher and as the face on the $100 dollar bill. But Franklin had his hands, mind and sights on so much more. He invented bifocal glasses, the rocking chair and the penny, which initially he inscribed with the phrase “Mind your business.”

When the bald eagle was nominated as the national bird, he suggested the turkey as a formidable alternative. Which makes you wonder what Thanksgiving would be if the national bird were off limits as edible? As a turkey hunter, I’m glad Franklin didn’t get his way.

Ben Franklin also served as a volunteer firefighter. In fact, Franklin and his Union Fire Company met in 1751 with other Philadelphia firefighting outfits to discuss the formation of a fire insurance company. Those conversations led to the formation of the Philadelphia Contributionship, the first successful fire insurance company in the colonies. The contributionship is currently the longest tenured insurance company in the United States.

The symbol for the company, four interlocking hands, was designed to convey the promise that in times of need – neighbors would be there for neighbors. Regulation grew up in states around this principle to ensure promises made would be promises kept.

Now, 265 years later, we gather in Philadelphia in the shadow of Independence Hall and Franklin’s legacy. We have much to be proud of – the largest and most vibrant insurance marketplace in the world, healthy competition in most lines of business and a regulatory system which has withstood the dual tests of time and crisis. 

But while we can look back on our history with a sense of pride, we also must look toward our future with a sense of purpose. We face a tidal wave of change unlike anything we have experienced in the long history of insurance. This revolution is fueled not by the passion of patriots, but by seismic shifts in technology, changing consumer demand, a global marketplace and a dynamic domestic political environment.

Insurance regulation must adapt. History is littered with the failures of institutions believing they were immune to change.  We have no intention of adding state regulation to such a list. 

To this end, NAIC has embarked on a bold strategic planning and policy initiative we’re calling State Ahead. State Ahead is a roadmap for the next five years designed to transform the NAIC to serve state regulation in what we all anticipate will be a rapidly evolving market. The plan—which is still being shaped— focuses on making improvements in the areas of safe and solvent markets, consumer protection and education, and NAIC member services and resources.

We all know the NAIC is passionate about serving regulators and advocating for our state-based system. However, we recognize the tools and services the NAIC provides will have to evolve. In particular, we foresee leveraging even further the world-class information the NAIC collects and stores as a critical element to our future as well as building the next generation of talent.

As we continue to execute on the fundamentals: solvency monitoring, consumer protection and education –we provide the best possible foundation for the continued primacy of state regulation. Our domestic and international policy agendas will similarly flow from the demonstration that state regulation has evolved and adapted to this new landscape – thereby, reducing the need for federal and international intervention. Our message to Washington, D.C. and the world is – we’ve got this.”

You are already seeing State Ahead in action with recent policy and operational developments. Let me highlight just a few.

On capital standards, many of you know the NAIC is developing our own group capital calculation – a tool based on U.S. regulatory and accounting standards. Through the good work of task force leadership and active members, we are advancing this project. Our goal is to provide state regulators an important tool to support our expanded group supervisory toolbox, and it will serve as our response to international discussions about appropriate capital requirements. 

Our capital calculation tool is not the only evidence of our commitment to advancing solid regulatory policies. We’re moving forward with PBR implementation to right-size reserves and better reflect the risks assumed by the sector. We’re also looking at our suitability model to determine if we must make improvements to respond to consumer demand and market forces. We’re reviewing our macro-prudential tools to make sure state regulators have a clearer view of market-wide activities and risks. And we’re working to make market regulation more harmonized across the country, while reinforcing our commitment to consumer education and financial literacy. 

As the federal government potentially steps back in some areas of financial services regulation, we must step forward to advance a credible, rational and robust state-based approach. 

In a more recent development, the Federal Reserve has accepted our invitation to work together to better align our  respective approaches to capital.  While these discussions have just begun, I am hopeful this partnership will result in efficiencies for market participants. Perhaps more importantly, it will signify efforts to develop a unified U.S. approach to group capital. Our coordinated efforts should further strengthen our position at the IAIS for a U.S. approach to be recognized as part of the international capital standard.

Strong federal endorsement of state regulatory initiatives extends beyond our enhanced collaboration with the Federal Reserve. The U.S. Treasury Secretary recently announced moving forward with the execution of a Covered Agreement with the EU. Treasury also intends to issue a formal policy statement affirming our state-based system of insurance regulation. We expect this policy declaration to support our group capital calculation, reject Solvency II approaches for the U.S. market, preserve our group reporting, and confirm state regulators will have an important role in any implementation of the agreement.

While we certainly are not embracing the mechanism of a Covered Agreement, we do welcome Treasury’s endorsement of our system and clarification of key elements of the agreement consistent with our requests. The end result of this Agreement sends a clear signal to the international community that regulatory cooperation still allows for the recognition that our systems are unique but still achieve the same principled outcomes.

We are reaching a critical moment at the IAIS in the development of an international capital standard. The U.S. is preparing to come to the table with a credible domestic approach. As the largest individual market on the globe with a layered, sophisticated and tested regulatory system, we expect our approach to capital will be recognized as part of the ICS. Without international recognition we will continue to enhance our system but see no value in contributing to an ICS that will not work for the U.S. market and consumers.

As part of our State Ahead initiative, perhaps no other issue features as prominently as innovation and technology and related opportunities and challenges posed to regulators, consumers and companies. 

Through the Innovation and Technology Task Force formed this year, the NAIC is working to understand how new technologies impact the insurance marketplace while exploring benefits to consumers, industry and regulators. We continue to monitor and encourage the development of a cybersecurity insurance market that will protect policyholders as well as drive best practices in data protection.

We will hold an event in conjunction with Stanford University this fall to help us better understand the transformative nature of our market. 

In a related area, our Big Data Working Group continues to gather information to assist state insurance regulators in obtaining a clear understanding of what and how data is collected, as well as how it will be used by insurers and third parties. Their review includes an evaluation of concerns and benefits for consumers, as well as the ability to ensure companies are following state statutes and regulations.

Big data, when properly managed, can improve how an insurer does business and benefits consumers. As regulators, while we might trust the benefits of big data, we have an obligation to verify consumers are treated fairly. 

Given the robust and sensitive nature of data held by insurance companies and NAIC, we are advancing efforts to provide regulatory guidance on cybersecurity. Building on principles we adopted in 2015, we are advancing a model law.

We should all be proud of progress we’ve made in positioning state regulation for this brave new world. However, we must address today‘s pressing challenges.

We have our work cut out for us in health reform, National Flood Insurance Program reauthorization and long-term care insurance to name a few. In these areas, we are well positioned to engage in a meaningful way in policy discussions – but the political environment in DC is challenging to say the least.

On health care, ongoing political gridlock in Washington continues to create uncertainty for consumers and markets. While state regulators are working hard to ensure some measure of stability and resiliency, Carriers are pulling out of individual markets across the country and it is possible there will be counties, and perhaps states, with no policies available on the Exchange in 2018.  Premiums and cost-sharing expenditures continue to increase, and networks are narrowing in many states. 

While our membership is politically and geographically diverse, our message in Washington has been unmistakably clear. Markets need stability and consumers need access to affordable coverage. 

Just as the clock is ticking on health reform, we have a near immediate deadline for reauthorization of the National Flood Insurance Program. Set to expire next month, we are working with Congress on a long-term reauthorization encouraging development of a private flood insurance market. Any lapse in this program will cause uncertainty for consumers and carriers – never a good thing in insurance.

Speaking of consumers, we’re focusing on new trends in home, life, health and auto insurance with our consumer outreach this year. We started 2017 with what we call Disasters Redefined, to educate homeowners on disaster prevention, preparedness and recovery.

Last month, we shifted gears to focus on what’s new on the auto landscape. While urging consumers to rethink their options, we launched DriveCheck – an online assessment to help consumers determine if usage-based insurance might be something to consider.

Our partnership with legendary entertainer Rita Moreno puts a spotlight on our efforts increasing awareness about retirement security. Rita’s campaign brings attention to important issues of early planning and making financial decisions which are beneficial for you and your family. For more than a year, Rita has been filling radio airwaves with a public service announcement. This PSA will be distributed to TV stations nationwide later this week.

I can only imagine how our founding fathers felt 241 years ago sitting in that hot little room over in Independence Hall.  I’m certain they felt the weight of the moment, the stare of history squarely on them.  It was shortly after the signing of the Declaration of Independence when Ben Franklin famously said – “we must, indeed, all hang together or most assuredly we shall all hang separately.” For those patriots hanging together was a frightening proposition – they were the clear underdogs and the stakes were incredibly high. 

The mistake England made then, however, was underestimating the revolutionists’ resolve, creativity and commitment to cause.

As state regulators working through the NAIC, we face our future together, understanding the challenges, and with confidence we will all hang together and demonstrate the enduring value of our state-based insurance system.

I hope all of our partners and stakeholders join us in this cause and support important work we’re doing here. Admittedly, we’re not writing the Declaration of Independence but all of us here are helping to craft the next and greatest chapters of insurance regulation in this country.

As we turn our focus to being in the room where our many meetings will happen over the next few days, I hope you all get a chance to visit the room where the Declaration of Independence was signed in 1776. Instead of performing a few lines from the Pulitzer Prize and Tony winning show about another Founding Father, “Hamilton,” I’ll close with a notable Franklin quote: "Energy and persistence conquer all things.” Let’s open this meeting with renewed energy and persistence to conquer the work before us.

And while you’re at it, have a cheesesteak or two. As a favor to me, ask for it to be topped with Wisconsin Cheddar.



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