Opening Session: States Marching Ahead

Opening Session: States Marching Ahead

Those of you who know me beyond my role as NAIC President know I’m an avid basketball fan. While it’s great fun to cheer for teams from my current home in Tennessee, my heart remains with the teams from the Bluegrass State. There’s an old adage about betting with your heart instead of your head, with the one exception being the NCAA basketball tournament. And I’ll give a shout out to the Kansas State Wildcats. So let’s leave our hearts with basketball, and focus our heads this weekend – and throughout this year – on our own bracket of issues we are facing in insurance regulation.


We gather here in Milwaukee on an anniversary of sorts - one that reminds us of our past as we chart the path to our future. Exactly 50 years ago the NAIC voted to move its central office from Illinois to right here in Milwaukee, but only on a temporary basis until a permanent home could be established in Chicago, New York or Washington, D.C. You’ll note that Kansas City wasn’t even on that original list.

Looking at the minutes of that meeting, we know that, like now, our members found themselves in a world of change. I have to imagine that much like the Space Program that would put a man on the moon only a year later, our predecessors felt similarly swept up in the wave of excitement and progress that was beginning to reshape the country. Milwaukee was chosen as the launch pad for NAIC’s own transformational journey. So it is fitting that fifty years later we return to Milwaukee once more to begin the next, and perhaps most critical phase, of the evolution of the NAIC and our state-based system. Throughout the past year, the NAIC has dug deep to understand where and how we need to shift resources to meet the changing needs of our membership. The result of that effort is our strategic plan, State Ahead. For the next three years, State Ahead will be the roadmap guiding the efforts of the NAIC as an organization to better adapt to change and best serve the needs of our state-based insurance regulatory system. It is essentially our “moon shot” project where we will bring to bear the brightest talents, cutting edge technologies, and our wealth of data to better serve state regulators in this brave new world we find ourselves in. If Elon Musk can send a Tesla to Mars, then I’m confident that it is within the capabilities of this organization and its membership to serve markets and consumers back here on Earth.

The format of the plan is straightforward – broken down into three core themes:

1) Safe, Solvent and Stable Markets;

2) Consumer Protection and Education; and

3) Superior Member Services and Resources.

I know – these aren’t new topics and not necessarily ground breaking principles. Our strategic plan is based on the recognition that the fundamentals don’t change in this new environment, but how we accomplish them and the tools we use, must make a significant leap forward.


It’s early in the implementation process, and one of the first things we are doing is reaching out to each NAIC member to help them assess possible areas of need. This effort will help us better understand how the NAIC can more effectively support all of us.

We are hearing directly from our members about what they need and how the NAIC can better support them.

The plan also capitalizes on the current domestic and international political environment. Misguided arguments for a greater federal role in insurance regulation have been disproven, while greater coordination between regulators at the state and federal level continues to improve. In a variety of ways, the Federal Government has now endorsed the primacy of state regulation for insurance and identified areas where the federal government should more clearly defer to states. As they step back, the states must step forward to fill the voids.

Regardless of how the federal government’s perspective and footprint evolves, there are real challenges we can’t ignore in areas such as cybersecurity, systemic risk and global pressure from international standard-setting bodies. None of us sitting around the table are so naïve to think the pendulum won’t swing back. Old arguments for more federal involvement fade, but they rarely go away for good. Therefore, the best defense of the state regulatory system domestically and internationally is a strong policy offense and a rock solid foundation of solvency and consumer protection here at home. State Ahead is our shared commitment that state regulation is not going anywhere, and it’s only going to get stronger and more effective from here. As legendary University of Kentucky basketball coach Adolph Rupp said, “Your defense will save you on the nights that your offense isn't working.”

This plan embraces the concept that we’re going to serve our members through leveraging and enhancing our foundation of data, technology and talent. Let me be clear that State Ahead is about empowering our members – not the NAIC. Regulatory authority rests with the states, period. But commissioners and regulators rely on our collaboration through the NAIC, and we invest our time and energy to build shared resources at the NAIC that allow us to better do our jobs at home. We’ve made it clear that we need the NAIC to step up and help every member around this room make informed decisions at a time when we often are overwhelmed with data.

Speaking of investment, the NAIC is making a substantial financial investment in the organization’s future. However, much of the cost of these investments is already a part of the NAIC’s approved 2018 budget, as well as the operating budgets for 2019 and 2020. Any future investments will go through an open and transparent process before final approval by the membership.

As most of the change that inspired State Ahead is driven by data and technology changes, let me highlight some of our priorities for 2018 starting there.


Technology is revolutionizing the insurance industry in part through the use of big data. As data becomes cheaper and easier to obtain, insurers are increasing the use of analytic tools to assess risk and predict losses. Companies are collecting nontraditional data to assist with ratemaking, underwriting, claim settlement and other insurance functions. The NAIC is evaluating the use of models and predictive analytics to determine what, if any, regulatory changes or enhancements need to be made and identify potential harm. A better understanding of what and how information is collected enables regulators to evaluate concerns and benefits for consumers, as well as ensure companies are following applicable statutes and regulations.

There are additional concerns about the sensitivity of collected information and, with recent security breaches, how this information is safeguarded. Consumer privacy and security of policyholder information are critical to consumer confidence in insurers. This brings me to the next challenge we face when protecting those we serve – cybersecurity.



We all know insurance companies are particularly attractive targets for hackers, due to the amount and sensitivity of data they collect. That’s why the NAIC adopted our Insurance Data Security Model last year. As I mentioned earlier, this is an area of federal uncertainty that gives the states an opportunity to lead. In its report on insurance, Treasury encouraged state adoption of the NAIC model.

Those of us around this table who worked so hard to craft the model further encourage every state to work toward adoption. We must act or face the real potential of federal preemption. Not only that, but as Congress debates data breach legislation, the state regulation story will get better with every state that implements our model law. This gives additional support to push back against efforts by Congress to potentially undermine the consumer protections our departments provide. This is the essence of State Ahead.

And in the area of our annuity suitability model, even with the recent court cases, our intentions are to still move forward with a rational state-based approach. Here again, we have an opportunity to lead and we will do so.

Back to Congress, the federal agenda this past year has been shaped by stark differences among political parties, infighting within Washington institutions, and lots of, well, drama.

Despite all this, Congress and the administration have managed to move forward on a number of NAIC-supported initiatives and have looked to provide relief in some areas. There also has been a noticeable and welcomed improvement in the relationship and coordination with several federal agencies. Not only has our relationship with Treasury improved, but we’ve seen the highest level of coordination on the international level with our counterparts at FIO and the Federal Reserve as ‘Team USA.’ While we’re still designing the team uniforms for those efforts, but I can assure you that we have a team that will make you proud.


One area where Team USA is playing at a championship level is with respect to international organizations such as the Financial Stability Board and the International Association of Insurance Supervisors. Much time and effort has been focused on developing global standards that may be well-intentioned, but too often may be inconsistent with current U.S. policy, the state-based system of insurance regulation, and the best interests of U.S. consumers and industry. Although international standards are advisory and non-binding, they could be implemented in many jurisdictions and ultimately impact the competitiveness of the U.S. insurance sector. A strong Team USA has been critical in recent negotiations in pushing back against standards that will not work for the U.S. market, and worse yet, have possibly unintended consequences for markets and consumers.


Speaking of international negotiations, the hottest ticket this winter, at least in the insurance space, wasn’t Hamilton or courtside at March Madness, but perhaps the NAIC Covered Agreement hearing in New York in February. For those of you lucky enough to score a seat, the Covered Agreement hearing provided a forum to discuss how the NAIC and the states can operationalize the covered agreement's provisions.

 The states will need to consider action within five years or face possible preemption. Any revisions to the NAIC credit for reinsurance model, or our other areas of regulatory policy will be considered through an open and transparent process. Interested parties will have additional opportunities to weigh in, including at this meeting. I expect that we will come away from this meeting with high level direction and a public roadmap that I know will be of great interest to stakeholders.


Tied to our work internationally, and embedded in State Ahead, is a recognition that interconnected markets means regulators must continue to enhance risk identification efforts. By analyzing how the insurance sector is impacted by, reacts to and contributes to various risk exposures in the broader financial markets and economy, we can better work with companies to support a regulatory environment that fosters stable financial markets. The Macroprudential Initiative is a logical continuation of the Solvency Modernization Initiative which enhanced our group supervision tools and developed principles-based reserving for life insurers.


Anyone interested in these and other international insurance issues should mark his or her calendar for the NAIC International Insurance Forum in Washington, D.C. May 14-15. Registration closes in two short weeks, so go to the NAIC website today to make sure you have a spot. I am particularly pleased that the C-Suite panel I’ll be moderating this year is comprised of all female CEOs. As an aside, Kentucky actually had a women’s basketball team before it had a men’s team. It’s women’s team was founded in 1902, a year before the storied men’s program launched. But I digress and turn to a much more serious subject.


Domestically, our challenges are significant as well. Rising health care costs account for nearly one-fifth of our national economy, and there is no indication of that trend reversing. While policymakers focus on health insurance reform, they have been distracted from the underlying cost drivers. The current trajectory of costs coupled with instability in the market is unsustainable, so we will be spending some time and energy this year highlighting these issues and discussing pulling potential levers to bend the cost curve. This work is in its early stages, but when we are talking about an area of spending around $3.3 trillion – that is with a T – even incremental improvements can have a huge impact.

Related to the cost of healthcare is long term care insurance, which remains a priority for the NAIC and its members. We’re firmly focused on both the market and consumer protection challenges raised by this struggling product. We will bring our analytical and solvency powers to bear to make sure both are protected.


What we do here at the NAIC matters most when we apply it to our own families and communities at home. For those of us with teenagers starting to drive, the first time they get behind the wheel our heart just stops. I have a daughter that’s a new driver. Like all parents, I will do whatever it takes to keep her safe on the roads. In my role as NAIC President, I’m grateful to have a platform to reach people concerning an issue that means so much to many of us. That’s why I’ve focused this year’s consumer education efforts on the prevention of distracted driving. The timing of this launch isn’t a coincidence, as April is Distracted Driving Awareness Month, and May brings with it tired final exam-studiers, proms and teens leaving college and high school for summer fun.

The NAIC is launching a campaign concentrated on safe, focused driving and I ask all members to take advantage of the new materials developed to support our efforts. So look for more from the NAIC to help educate consumers on the dangers of distractions when driving.


Another worthy cause I'm pleased to support at this meeting is helping children in the Milwaukee child welfare system. SaintA, a private, non-profit recently featured on 60 Minutes, provides ongoing case management and safety services to children suffering long-term effects of childhood trauma. SaintA is a dynamic provider advancing foster care, education and mental health services, and I am pleased we will be making a donation later this week and supporting their mission to "provide innovative family-centered care and educational services that embrace diversity and empower children, families and adults to improve the quality of their lives."


We have many important tasks to accomplish here in Milwaukee. I wish you all a productive and successful meeting, there’s plenty of work to be done. Legendary coach Pat Summitt, who happened to be the winningest head basketball coach until recently, AND who hails from Tennessee, had a very simple philosophy.  “Here’s how I’m going to beat you. I’m going to outwork you. That’s it. That’s all there is to it.” I hope you stay focused on your work and it keeps you motivated through this meeting and through the rest of the year.

And when you get to take a break, get out and enjoy this wonderful city and the scenic shores of my favorite Great Lake.

With that, I wish a good afternoon to you all and conclude this 223rd Opening Session of the National Association of Insurance Commissioners. Thank you!