It’s hard to believe it’s the beginning of December as we gather here in the majestic Hawaiian Islands for our Fall National Meeting. And while we’re still a few weeks away from Christmas, it seems like Mele Kalikimaka is the thing I should say — at some point. In case you’re not familiar with the Bing Crosby song, it means Merry Christmas!
What a beautiful state. What remarkable weather in December!
When I think of Hawaii this time of year, I am reminded of Pearl Harbor. A short five days from now, December 7th will mark the 76th anniversary of the attack on Pearl Harbor. The next day President Roosevelt famously declared December 7th “a date which will live in infamy.”
And it has.
It also forever altered our nation’s course as many Americans soon went off to battle on the two major fronts of the Second World War. Still recovering from the Great Depression, the American economy found new life during World War II. Factories retooled to produce goods in support of wartime efforts, women went to work to fill jobs held by men at war and the workforce reached full employment by the conflict’s ending. America found its footing and took its place as a world leader during those years.
I‘d like to think, the NAIC has established, or re-established its footing as a leader on insurance regulatory issues this year. Our December meeting marks a transition for the NAIC as we begin to conclude the work of one NAIC President and start the transition to the next. It allows us an opportunity to reflect on all that has transpired this year, all we have accomplished together and the groundwork we have established for future successes.
Before I touch on some of our major policy successes, it’s important to start with the events that highlighting the NAIC as an organization and who we are as a community of regulators. History teaches us that in times of crisis how we respond defines who we are and what we‘re made of. During the Pearl Harbor attack, acts of selfless heroism and sacrifice transformed it into hallowed ground. This year we saw some of our members demonstrate their own character and compassion in response to catastrophes of a different kind.
While certainly not on the same scale, 2017 was an especially difficult year for many in this room when it comes to responding to and recovering from natural disasters. Hurricanes Harvey, Irma and Maria, as well as California wildfires were a test for all of us. Estimated losses from hurricanes and two recent earthquakes in Mexico are estimated at around 95 billion dollars in insured losses. As of mid-October, the National Flood Insurance Program estimated total insured NFIP losses at 16 billion dollars. One of the greatest strengths of NAIC and state-based insurance regulation is our ability to respond in times of crisis. This short video highlights some of the devastation and recovery efforts, which have forever marked the losses experienced in 2017.
Similarly appreciated are the efforts of our members and the NAIC in responding to these disasters. Even before the first winds of any of these storms were felt, NAIC staff and I were getting calls from many of you around this table – all with the same question – “how can I help?” It is our sense of community and family that defines the NAIC. We are at our best when the world is at its worst.
Innovation and Technology
Now let me turn away from our response to the tropical winds which wrecked so much havoc to the winds of changes sweeping across the insurance sector proving to be equally disruptive — although maybe in a much more positive way. I suspect at some point in the future we will look back at this period as the time when new technologies, new market disruptors and new innovations began to make their mark on insurance, the slow death of tradition in insurance rapidly accelerated, and we may struggle to recall what our sector was like before. This transformation is fueled by rapid developments in technology. It’s changing consumer demands and expanding the global marketplace. It’s also now a core component of our work at the NAIC.
As regulators, we are challenged to balance critical consumer protections with demand for innovation while maintaining stable, competitive and fair market dynamics. Insurance regulation must keep pace with these pressures. History is littered with the remnants of companies and organizations failing to keep pace with change. In 2017, the NAIC committed itself to not being a casualty of complacency. We saw the tide of innovation and technology rushing towards us and took our lead from our host state and instead surfed the wave of change.
By reaching out to startups early in the process, companies can better understand the regulatory landscape and are better positioned to follow laws and regulations. To encourage this open dialogue and explore the innovation and cybersecurity threats, NAIC hosted and participated in a series of events on the west coast this fall. We attended the InsureTech Connect conference in Las Vegas and engaged with players in the insurtech landscape to gain an understanding of what they’re doing and to make sure they even know they’re innovating in a highly-regulated industry. We also teamed up with the Stanford Cybersecurity Initiative to host a forum so policymakers and the public can better understand the world of cyber threats and the critical role of cyber insurance in mitigating these risks. And while in Silicon Valley, we also visited the campuses of insurtechs Plug and Play Tech Center and Waymo, autonomous car development companies. These types of events position NAIC to serve as real thought leaders in the RegTech and InsurTech spaces.
Of course in being a thought leaders you can‘t just focus on the cool stuff that impresses Millennials, you have to take on the hard issues as well. One such issue we took on in 2017 was cybersecurity. Cybersecurity risks are now more compelling than ever as consumer financial and health information is increasingly stored in electronic form. Insurance companies are particularly attractive targets for hackers, due to the amount of sensitive data they collect.
An important development in the cybersecurity space is the NAIC’s recently adopted Insurance Data Security Model. This model establishes standards for data security, for the investigation of cyber events, and for notifying state insurance commissioners of such activity. In fact, U.S. Treasury Department’s recent report on insurance effectively endorsed this model, but put states on notice to pass it consistently or risk federal intervention. I encourage all of you to begin working with your state legislatures to implement this model in your state.
Cybersecurity insurance is still a relatively new product and collecting information regarding its penetration is vital to understanding this emerging market. In 2015, NAIC developed a supplement for insurer financial statements to gather financial performance information from insurers writing cybersecurity coverage nationwide. Now that we have data to review, we are better able to report on the cyber insurance market and identify trends and the potential need for tailored regulation.
Just as insurance sales in other sectors can drive best practices, this new segment should help set standards for policy coverage, steering policyholders to better protect the data for which they are responsible. This is another space we are leading in the InsurTech and RegTech areas to support a thriving and secure market.
Financial Regulatory Reform
Looking back on 2017, we have seen a seismic shift, if you’ll excuse the pun, in some of our coordination efforts with the federal government on financial regulatory issues. Throughout the past year, I am happy to report we have shifted our efforts to a better coordinated and productive working relationship with our colleagues in Washington. The Treasury’s recent report on insurance demonstrates the result of this constructive engagement strategy and aligns with several NAIC policy principles. Among these are encouraging federal agencies to coordinate with states on insurance matters, recalibrate the Federal Insurance Office and promote the state-based system of insurance regulation internationally. This report is the most explicit endorsement of state regulation from the Treasury Department we’ve ever seen.
Another positive development with Treasury and the United States Trade Representative was clarification they provided when they signed the covered agreement with the European Union. We worked closely with Treasury and USTR on clarifications in key areas like capital, group supervision, reinsurance and the Joint Committee. We appreciate their affirmation of the primacy of state regulation. Importantly the Covered Agreement also results in EU’s recognition of our U.S. regulatory system, including our group capital calculation currently under development. State regulators and legislators have important decisions to make in response to the covered agreement, but for our part, we intend to carry out this work through our open and transparent process.
We also saw progress with the Financial Stability Oversight Council in the AIG de-designation as a systemically important financial institution. FSOC's justification for this action reflects a new understanding of the insurance business model and insurance regulation. It is also more consistent with NAIC’s policy views on insurance and systemic risk. A big thank you goes out to Director Peter Hartt and the NAIC team for these efforts to shape how the council views insurance companies and insurance regulation.
As I hope you can sense, 2017 has been a good year for relationship-building at the NAIC. We also have improved our congruity with the Federal Reserve. We have a commitment from the Fed to coordinate with us as we proceed with our group capital calculation. We look forward to this enhanced working relationship. This work is not to further enhance our own system but serve as our vision to the international community as we continue to develop international standards truly serving the needs of regulators.
Engagement on International Standard Setting
Just as we work to promote an effective regulatory framework in the U.S., we must also protect U.S. interests abroad. State insurance regulators are shaping efforts to develop realistic and flexible global standards and address systemic risk while restraining the tendency of international organizations to prescribe rigid, one-size-fits-all solutions. We made great progress last month at the IAIS meeting in Kuala Lumpur in advocating for standards respecting jurisdictional differences, including our aggregation approach. But we have a long road ahead to ensure the U.S. system and its participants are reflected in the work of IAIS.
National Flood Insurance Program Reauthorization
Of course there are a few areas where progress has been made, but more works needs to be done. For example, hurricanes and resulting floods of 2017 served as a very real reminder of the importance of the National Flood Insurance Program in recovery. Congress temporarily extended the NFIP through this Friday, December eighth. We will continue to engage Congress on the importance of a long-term reauthorization. It is encouraging the House included several of the guiding principles we developed in their legislation for NFIP Reauthorization and an expanded role for the private sector.
Senior Safe and Long Term Care
We also continue our efforts to protect our seniors and promote retirement security. In Congress this year, NAIC successfully advocated for the Senior Safe Act, which was unanimously approved by the House Financial Services Committee in September. This legislation is designed to help increase identification and reporting of suspected financial exploitation of senior citizens. We’re continuing to focus on enhancing financial literacy efforts – particularly retirement security – to better safeguard our senior consumers. Additionally we are increasing efforts to ensure products like long-term care insurance continue to be available to Americans as they plan for retirement and the uncertainties of life.
Health Insurance Issues
And of course in the category of “more work needs to be done” we must include health care reform. Health care has offered us all a political and market roller-coaster ride to say the least this year. But every regulator sitting around the table still has an individual market still operating in their states, which was not a given throughout the various repeal and replace debates in Washington. This is in large part a result of the tenacity of state regulators.
We continue to work toward stability – where rates, carrier participation, coverage options and provider access are reliable for consumers and companies. Obviously we still have work to do to keep carriers in our markets and expand options, especially as premiums continue to rise, cost-sharing amounts increase, and networks narrow in a number of states. We remain steadfast in urging Congress to stabilize our fragile markets to bring greater certainty and hopefully, more competition in the near term.
What has been most remarkable about our engagement on healthcare has been the consistency of our message. While we represent a politically and geographically diverse constituency, our collective focus has been on needs of consumers we serve and a unified and credible message has been the result.
As you can see, we really have had a robust and at times, an overloaded year, and I’m proud to have served as your president throughout it all. As an avid outdoorsman, I learned the campsite rule early – for those of you who have never slept in a tent, it’s the concept that you leave your campsite or stream bank just a little better than you found it. In addition to leaving no trace, a conscientious camper also does his best to improving the grounds just a bit. Along these lines, one of my proudest endeavors is the development of a strategic plan for the NAIC. While the campfire on this initiative is really just getting stoked, I believe our plan – State Ahead – will provide a framework for our officers and members to guide NAIC through the challenges and opportunities facing insurance regulation over the next three years. This plan is set to be finalized and released early next year.
Embodied in State Ahead is recognition requiring our roles to be forward-thinking, but it is also rewarding to measure results of our work. We’ve now reached the first anniversary of the launch of our Life Insurance Policy Locator tool. Before the nationwide policy locator was created, the process of finding lost life insurance policies was difficult, disorganized and quite cumbersome. Leveraging NAIC innovation and technology, we created a tool that allows consumers to easily access nearly all life insurers to search for lost policies and annuities. And we have great news to report on this front. In its first year, the policy locator has found more than 92-million dollars for consumers – with more than three-quarters of that amount located in the last six months. We should all be proud of these results, as they demonstrate a huge win in fulfilling our mission of safeguarding and assisting consumers.
Another successful achievement in our consumer education outreach is our work with legendary entertainer Rita Moreno. In a year where we’ve seen celebrities, politicians and journalists making news for nefarious activities, we got more positive attention from Ms. Moreno’s public service announcement than with any NAIC PSA to date. Rita’s radio PSA has helped spread awareness about insurance and financial issues to consumers. The radio PSA has accumulated more than 720 million impressions for an ad equivalency value of $11.1 million dollars. We also kicked off a TV PSA in Philly that’s off to a tremendous start. Rita’s “Just Keep Moving” TV PSA has generated 51 million impressions and an ad equivalency of $2.7 million dollars thus far. Her Netflix show “One Day at a Time” is scheduled to release Season 2 next month. Meanwhile, we can’t thank her enough for the attention she’s brought to consumer education on our behalf.
Before we close I want to take a moment to remember our late colleague, David Mattax.
David died after a battle with cancer in April. He was appointed Texas Commissioner of Insurance by Governor Greg Abbot in January 2015 and elected NAIC Secretary-Treasurer for this year. We lost David too soon and in his honor I’m pleased to announce we are establishing an NAIC scholarship at the University of Texas Center for Risk Management and Insurance at the McCombs School of Business.
I want to take the opportunity to once again say aloha to you all! It’s fitting to close with an aloha not just because we’re in Hawaii, but because of what it means. Gordon will tell you that living “the aloha way of life” is a part of the Hawaiian culture. Residents here don’t just say aloha, they do aloha. Living the aloha way is about appreciating and respecting the natural beauty around us and committing random acts of kindness.
It’s the way of love, peace and compassion. It’s the NAIC way, too. It’s our continued love of knowledge and preparation for the future by immersing ourselves in innovation and technology. It’s our peaceful nature when it comes to discourse with government officials during our frequent trips to Capitol Hill. And it’s our compassionate response to help one another as we’ve faced natural disaster after natural disaster as well as our day-in-and-out commitment to safeguarding consumers and their interests.
We’ve accomplished a lot this year and it’s been my honor and pleasure to serve as NAIC President.