This year we celebrate the 10th anniversary of the Interstate Insurance Product Regulation Commission (IIPRC), the 20th anniversary of the National Insurance Producer Registry (NIPR), and the 145th anniversary of the first meeting of the National Insurance Convention, the precursor of today's NAIC. I invite you to join us for a special celebration tonight during the Welcome Reception to commemorate these milestones.
Today, we can mark many milestones. Looking over this combination of 175 years of insurance regulation history, we can be proud of many accomplishments.
The Victorian Era of 1871 is a stark contrast to the world we live in today. But the more things change the more they stay the same.
I'd like to share with you an excerpt from the 1871 proceedings —comments from New York Superintendent George Miller. At that first meeting he said:
"Of the matters to be affected by legislation it would seem that we might profitably consider:
- …the possibility of the adoption of a uniform standard or system of computing the reserve or policy-liabilities of life, fire, and marine companies.
- The subject of deposits to be made by companies in the states.
- Dividends, particularly in life companies, and upon capital stock when a portion of the capital is required to make up the reserve.
- What to be considered assets, particularly in life companies.
- How to bring about, generally, the broadest uniformity, simplicity, security and reciprocity."
Like I said, the more things change, the more they stay the same.
Milestone is an interesting term. It is the old-fashioned word for mile marker – the small sign on the side of a highway telling you not only how far you've come and how far you have left to go, but also where you currently stand.
So let me do just that – take stock of where we are right now. First, we'll look at our place internationally, and then move on to where we are domestically.
Today's insurance regulators are sophisticated financial regulators, with an understanding of complex and interconnected financial markets. While insurance markets around the world are growing, we are working together to safeguard this pillar of the global financial infrastructure.
As you know, a significant aspect of our international engagement is in standard setting. Since we last met, our own NAIC Vice President, Commissioner Julie McPeak was elected to serve as vice chair of the International Association of Insurance Supervisors Executive Committee, where she is joined by President-Elect Ted Nickel and Commissioner David Mattax. Commissioner Katie Wade was also appointed to the IAIS Financial Stability and Technical Committee to join our existing team of regulators and NAIC staff in that important work.
With a number of important projects underway at the IAIS, the leadership, expertise, and contributions of time and talent of our commissioners and staff are critical. Their collective voices and their votes are essential to protecting the interests of U.S. consumers and companies as well as stability in our insurance marketplace.
Focus on Asia
We have worked diligently to foster and expand our key bilateral relationships. These efforts between regulators are imperative to foster cross-border business, and to ensure cross-border regulatory cooperation. Notably, nearly two-thirds of the global insurance market is comprised of the Pacific Rim and Latin American regions.
This includes the top three largest national markets, the U.S., Japan and China. As U.S. insurers seek growth, it is in these regions that the greatest opportunities will expand in the years ahead.
Earlier this week right here in San Diego, the NAIC hosted the 3rd Annual U.S. & Asia-Pacific Insurance Forum. We see first-hand where the future of global insurance development lies.
Within 10 years, China is expected to be second largest insurance market in the world. This is why U.S. regulators are focusing more of our time and energy to further develop our relationships within the Asia-Pacific region. We have continued our ongoing bilateral dialogues with the Financial Services Agency of Japan.
In July, our President-Elect Ted Nickel, and I went to Shanghai to meet with our colleagues from the China Insurance Regulatory Commission. Those meetings with Chinese regulators were so successful that we followed up with a meeting with CIRC Chairman Junbo in New York the next week.
Earlier this month NAIC Secretary-Treasurer Eric Cioppa traveled to Bangkok to meet with 45 regulators, representing 11 jurisdictions in the Asia-Pacific region.
In addition, U.S. regulators have maintained our close relationship with the Bermuda Monetary Authority and for several years with our Latin American colleagues, participating in the ASSAL program. While our focus on regulatory cooperation with these jurisdictions is not new, this increased dialogue is an indicator of where we see growth and opportunity. By engaging with our counterparts, we have the chance to learn from each other, sharing ideas and innovations we can translate and apply to our system in the U.S.
Our ultimate goal is to make our regulation more effective for consumer protection and stability in our markets.
Solvency II/Covered Agreement
Across the other pond, we have continued our engagement with our European colleagues where, not surprisingly, the focus has been on Brexit and their ongoing rollout of Solvency II. The implementation of Solvency II and deference, or lack thereof, between U.S. and European regulators has been a topic of much interest. Implementation of Solvency II has been described as "quite patchy and messy and likely to stay this way for some time to come." We have long said that while we support our European colleagues in their efforts to overhaul their solvency system, its elements do not fit with the U.S. approach to insurance regulation.
At the NAIC's 10th annual International Insurance Forum held in May in Washington, D.C., Federal Reserve Board Governor, Daniel Tarullo stated that the Federal Reserve had reached a similar conclusion as the Feds work to develop their own capital and prudential requirements, citing concerns about Solvency II's potential for volatility, procyclicality, and excessive reliance on internal models.
Nevertheless, the Solvency II regime is underway and already we have seen some key jurisdictions imposing additional, potentially discriminatory, requirements on U.S. insurers at a time when the states are actively making progress to reduce consumer protection collateral requirements in a measured, transparent and consistent manner.
We have worked in good faith and with thoughtful regulatory restraint to roll back collateral requirements for firms from many of these very same EU jurisdictions.
This is clearly an unfortunate byproduct of Europe's Solvency II directives.
Instead of pursing a path of mutual recognition that avoids preemption or retaliation, the EU and our own federal government political and trade leaders are pursuing a covered agreement behind closed doors that has the potential for unnecessary preemption of state authority.
Perhaps most troubling about the covered agreement negotiations is how little state insurance commissioners,
governors, state and federal legislators, consumers, or anyone else in this room for that matter, know about them.
There is much speculation about what might be included or resolved, but no actual knowledge or insight except for a select few.
While there is a small group of commissioners involved as observers in the discussions, their ability to gather feedback or consult their fellow regulators is simply non-existent.
Neither the Treasury Department nor the U.S. Trade Representative has offered to provide any insight on even high-level expectations, let alone negotiating objectives. To those who have called for a covered agreement to resolve the disparate treatment that European regulators are now imposing on U.S. firms, be careful of what you wish for.
Later at this meeting, our International Insurance Relations Committee and our own Reinsurance Task Force will discuss some of these dynamics, including any impact on the qualified jurisdiction status of EU jurisdictions, in more detail.
Domestically, our milestones have been exceedingly positive as we have pursued consistent progress on a number of important fronts.
During my tenure as NAIC President, I have pushed our organization to focus on what we can do to ensure our citizens are ready to handle a wide array of issues related to their retirement.
Our Retirement Security Initiative is broken into three categories; education, consumer protection and innovation.
We kicked off the Retirement Security Initiative at our spring meeting by unveiling our partnership with celebrity spokesperson Rita Moreno.
Rita has proven a great fit for the NAIC to help advance our consumer education mission.
Her public service announcements are available in both English and Spanish and focus on the importance of planning early and understanding your financial picture as you grow older.
After just two months, Rita's public service announcements have aired more than ten thousand times in 42 states.
I hope you will all be able to join us on Saturday at 4 p.m. in the Grand Hall for a special appearance by Rita to talk about our partnership.
Back to our education campaign. As we saw in a recent 60 Minutes story featuring the Florida Office of Insurance Regulation, lost life insurance policies can keep consumers from claiming funds that are rightfully theirs. Americans have yet to claim more than one billion dollars in lost or forgotten life insurance policies. That's why the NAIC is creating new ways to connect beneficiaries to their policies.
Consumers currently seeking misplaced life and annuity contracts can use the National Life Insurance Policy Locator Service on the NAIC website. Later this year, we'll be launching the Life Policy Locator application. The app is designed to make finding lost life policies and annuity contracts even easier by leveraging technology powered by the NAIC.
Also on our website is a link to a new microsite that pulls together our consumer outreach into one easy to use online resource. Here you'll find consumer information on annuities, special considerations for multi-generational households, education on insurance needs for family members caring for an aging parent and information on long-term care and Medigap policies.
The second platform of the Retirement Security Initiative is consumer protection. In this area, you'll hear discussion this week as our committees are reviewing and updating our model acts and regulations, and pushing for adoption in our states. Many of these models focus on annuities, from suitability and disclosure to senior specific designations and certifications. Updates to these models and ultimately adoption into state laws will better protect individuals as they reach retirement age.
Finally, the third platform is innovation. There is no greater area of the insurance sector in need of innovation than with long-term care insurance. As part of a more comprehensive look at these products, including the challenges facing legacy policies, the Long-Term Care Innovations Subgroup is looking at ways to remove barriers to product offerings while ensuring consumers remain protected. This is no small task, which is why we held a hearing yesterday to get the perspectives of a variety of stakeholders on how to finance long-term care needs while increasing the number of affordable choices.
Our goal with these measures is to protect consumers, allow industry to develop products that meet their needs, and better position individuals for later in life.
Another initiative started this year is our focus on Big Data. As insurers collect more granular data about insurance consumers, state insurance regulators need greater insight into what data is available to the industry, as well as how it is being used by insurers. While the use of big data can aid in underwriting, rating, marketing and claim settlement practices, the challenge for us as regulators is to examine whether it is beneficial or harmful to consumers. We also need to monitor how this data is safeguarded and how consumer privacy is maintained.
The NAIC Big Data (D) Working Group was appointed in 2016 to review insurers' use of this information. We also asked this group to explore potential opportunities for regulatory use of big data that might improve efficiency and effectiveness in market regulation. The Working Group has held hearings and investigated the use of big data.
To date, it appears there is a need to continue to assess insurers' use of consumer data; the review of complex rating models; and transparency and consumer education of what and how insurers are using the data.
So that's where we stand today. Looking at all of our to-dos at this National Meeting, we have a lot to accomplish in a very short period of time. Let me walk you through some of the highlights.
Cyber threats continue to loom large for insurance companies, state insurance departments and the NAIC. At this meeting the Cybersecurity Task Force will review federal legislation under consideration, as well as data received from the Cybersecurity and Identity Theft Insurance Coverage Supplement. They will also review the Data Security Model Law and discuss next steps.
We reached another NAIC milestone in June when we hit the threshold of premium volume to trigger the transition to Principle-Based Reserving.
This is an historic accomplishment, marking the beginning of a new policy valuation system that can adapt to innovative life insurance products benefiting consumers and life insurers.
Currently 46 states representing more than 85 percent of premium have adopted the Standard Valuation Law and two states are currently working on passing the legislation. Executive and Plenary will consider adoption of the final Valuation Manual amendments with the anticipated operational date of Jan. 1, 2017.
Our focus on Big Data comes to play in PBR as well, as the NAIC has made substantial investments in technology and infrastructure to facilitate the collection and analysis of experience data and reports as PBR becomes operational.
Another item of broad concern is access to health care, even when a traditional ambulance can't reach you. Consumers in just about every state have received critical, life-saving air transport to an emergency room or trauma center, only to find out the air ambulance carrier is not in their insurance network. This can result in uncovered bills amounting to tens-of-thousands of dollars. State laws that would protect consumers in such cases are preempted by the Federal Airline Deregulation Act. The NAIC has been looking into this issue, and will hear from stakeholders on Sunday morning to gather more information on what regulators can do to maintain this valuable service while protecting consumers.
Further work protecting consumers is being done by our C Committee. The Property and Casualty Insurance Committee will be enhancing consumer protections with revisions to shopping tools and consumer guides for both auto and home insurance.
Related to our P&C work, the Center for Insurance Policy Research will hold their summer event Gearing Up for Autonomous Vehicles on Sunday. The session will focus on current auto insurance trends and how technology is shaping insurance needs. Panelists will discuss strategies related to underwriting, claims and product development.
I also want to pause for a moment to highlight the NAIC's work with Congress as they reauthorize the National Flood Insurance Program.
There is a growing appetite for private flood coverage to give consumers additional options as well as take some of the pressure off taxpayers exposed to NFIP losses. Congress can help incentivize that growth. We intend to actively contribute to that dialogue, and are drafting principles and reforms for their consideration. I am encouraged by an increased focus on disaster resiliency at the federal level. Unfortunately, we are seeing a trend toward more uninsured losses following disasters. We need to change that course by adding measures for mitigation and preparedness.
Recently, Commissioner John Doak participated on our behalf at the White House Forum on Smart Finance for Disaster Resilience. The meeting brought together public and private sector participants to share perspectives on mitigation, pre-disaster resilience financing, and innovative public-private partnerships. This forum is part of an ongoing effort that connects a wide cross-section of federal, state, and local governments.
We know first-hand why these efforts are crucial. We're often the first line of defense following natural disasters – as we've seen with the flooding in Louisiana and wildfires here in California – we are in a better position to aid in recovery.
Our thoughts are with the families of those who lost lives and homes in and around Baton Rouge and with those who lost their homes here in California.
The strength of state insurance regulation in the U.S. is reflected in the strength of the NAIC. We saw this in May when we hosted the inaugural Insurance Summit in Kansas City.
The summit combined several annual meetings hosted by the NAIC into one large conference. The meeting gave more than one thousand insurance regulators, industry professionals and consumer representatives the ability to attend a variety of sessions – from market regulation to big data and technology.
It takes time, people and resources to accomplish so much. The NAIC is in the middle of our annual budget process. We will release our draft budget for review and will accept stakeholder input later this fall. As markets evolve, we need to be open to budgetary adjustments to best deliver on both member and marketplace needs and expectations. In recent years we have made substantial investments into NAIC resources, including enhanced cybersecurity for data collection, analysis and distribution. It should also be noted that as we have seen shifts in the market, we are also doing our best to make sure our budget is fair to all participants and stakeholders.
At this mid-point in my term as NAIC President, I am so proud of the work we have accomplished, and optimistic about the vision and direction we have for the future.