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ORLANDO, Fla.-Buyers and brokers are enthusiastic about state insurance regulators' acceptance of the concept of deregulating commercial lines and the fast track it is on for further development.
The two groups plan to help a National Assn. of Insurance Commissioners subgroup meet a June deadline to finalize a new, preliminary white paper on regulatory re-engineering.
The subgroup also will develop prototype options for states to implement, according to the draft released last week at the NAIC's spring meeting in Orlando.
The Risk & Insurance Management Society Inc. "commends the NAIC Special Committee on Regulatory Re-Engineering for its continued effort to explore deregulation and in preparing the draft of the white paper," said David A. Holcombe, risk manager for International Speedway Corp. in Daytona Beach, Fla. He chairs RIMS' Government Affairs Committee. "The NAIC should continue the focus of deregulation on the insurance buyer," Mr. Holcombe said.
Anne Flanagan, state affairs director for the National Assn. of Insurance Brokers in Washington, supports the pace of NAIC's efforts: "We think it's slow, but steady, progress to improve the market."
The new draft includes a new, three-page, single-spaced summary of the NAIC's involvement, the paper's purpose and an overview of the issue.
Most of the draft consists of state surveys on regulatory re-engineering initiatives, copies of laws and preliminary recommendations made last year by the Commercial Lines-Property and Casualty Committee (BI, Dec. 23/30, 1996).
The draft is "very much of a first, working draft," emphasized Brian Atchinson, Maine's insurance superintendent and the new chair of the re-engineering committee. "We caution you not to make more of it than what it is."
Some were disappointed it was not more comprehensive.
"I expected more from this draft," said Larry Kibbee, vp and director of public affairs for the Alliance of American Insurers in Schaumburg, Ill.
However, brokers, as well as buyers, were encouraged by statements in the draft.
The planned white paper has a two-fold purpose. It will describe and evaluate the issues and the proposals that have been presented to the NAIC committee since its inception. It also will recommend "the development and prioritization of specific regulatory re-engineering initiatives regarding commercial lines insurance and prototype options to promote efficiency and coordination among regulators and industry."
"The rationale for the focus on commercial lines is that large, sophisticated commercial insureds no longer require the protections provided by old laws and regulations drafted before large insureds were represented by risk managers, brokers and other professionals," the draft states.
Buyers and brokers also were encouraged by the draft's explanation of the goals of streamlining commercial lines regulation:
Simplifying multistate transactions currently hindered by regulatory inefficiencies.
Increasing the viability of commercial lines products.
Reducing the potential strain on guaranty funds.
Allowing regulators to concentrate on personal and small commercial risks."
While regulators appear to support the concept in general, they are aware that some details may be controversial. More than a dozen industry trade groups and companies have recommended various deregulation proposals.
They include asking regulators to: improve the surplus lines tax mechanism; allow state licensing of non-resident brokers; eliminate counter signature laws for admitted and surplus lines transactions; simplify agent licensing laws; re-examine data reporting requirements; make residual markets more self-supporting; amend bond requirements in surplus lines laws; and reduce regulation of statutorily mandated coverages such as workers comp insurance.
Those recommendations and their sources are summarized in a chart included as one of seven appendices to the draft.
The draft also briefly discusses the NAIB proposal that policyholders with a risk manager and annual property/casualty premiums of at least $100,000 be exempt from rate and form regulation, guaranty fund coverage and assessments and residual market charges (BI, June 10, 1996).
However, the re-engineering committee identified 10 separate concerns about the broker organization's proposal, including the risk of shifting guaranty fund and residual market burdens onto small and midsized insurers.
The re-engineering committee faces a challenge in completing its final draft by the time the NAIC holds its summer national meeting June 7-11 in Chicago. To achieve it, Mr. Atchinson established an April 7 deadline for comments on the current draft. Comments should be sent to Ellen Wilcox at the NAIC's Kansas City, Mo., headquarters.
He also plans to discuss the draft during a conference call in mid-April with the the re-engineering committee and interested parties; produce a new draft in late April; hold another conference call in May; and issue a revised draft by late May that will be available for public comment.
"Based on the committee's openness and receptiveness, we are hopeful our comments will be received and included," said Patricia C. Vaughan, associate general counsel for RIMS.
The committee also is expected to receive comments from a technical study of deregulation issues, said Robert W. Klein, a former NAIC staff member who is now director of Georgia State University's Center for Risk Management and Insurance Research. About seven to 10 insurance industry groups are contributing to fund the $60,000 study, which should be completed this summer, he said.
NAIC deliberations about regulatory re-engineering may be making slow progress within the organization, but they already are having an impact in the states, said the Alliance's Mr. Kibbee.
"If nothing else, this NAIC process has given state regulators the impetus to go forward in their own states without waiting for the committee to act," he said.
"Approximately half the states have recently initiated some types of regulatory re-engineering study to identify ways to streamline state laws and regulations," according to a 1996 NAIC survey quoted in the study.
Most states conducted broad studies, according to the NAIC survey. However, efforts in Massachusetts, New York and Pennsylvania specifically included streamlining commercial lines regulations.
In addition, an earlier survey by the commercial lines committee found that 10 states changed the way they regulate commercial property/casualty coverages during the past five years. Those states are Maine, Michigan, Minnesota, Nebraska, Nevada, North Carolina, South Carolina, Texas, Virginia and Wisconsin.
In related action, the NAIC's commercial lines committee decided to wait until it saw the re-engineering committee's June draft to appoint a working group to consider excluding commercial lines coverages from the scope of two, pre-existing NAIC model rating laws.
In other action at the NAIC meeting:
A nearly unanimous vote by the NAIC's 17-member Executive Committee reaffirmed regulators' support for a strong but flexible accreditation program in a reform proposal to make the standards more results-oriented.
Members voted to toughen a results-oriented reform proposal to reinstate four of six standards that were designed to prevent insolvencies and related problems. The reinstated standards control the actions of managing general agents, reinsurance intermediaries, business transacted with producer-controlled insurers and guaranty funds.
However, states in the future would need only to provide evidence of basic regulatory tools to meet any such problems, rather than strictly adhere to NAIC model laws. Any state that can prove such issues don't apply to operations in its state need not comply.
The committee did agree to eliminate two of the six model standards dealing with regulation of risk retention groups and disclosure of material transactions.
The reform proposal stemmed from a controversial compromise that drafters approved by a 9-4 vote in December, said Insurance Director Hal Duryee of Ohio.
Texas was the chief proponent of that compromise, which Commissioner Elton Bomer described in a March 14 letter to commissioners as "a modest beginning point for the rest of the reform issues." Caroline Scott, the department's general counsel who represented the absent Mr. Bomer at the meeting, also argued that the accreditation program had been made strong enough by tightening regulatory practices and procedures.
Acting Superintendent Greg Serio of New York, which previously lost its accreditation for failing to adopt new models, supported Texas' position and said his Legislature would not approve all the reinstated standards.
However, Executive Committee Chairman Glenn Pomeroy of North Dakota argued that the four standards relate to solvency "in some important way."
Regulators should "not dismantle basic and fundamental safeguards which protect consumers and promote uniformity," he said in a six and one-half page letter to executive committee members that recounted the history of several insolvencies that led to the original adoption of those standards.
The NAIC's full membership is expected to support the changes when it votes at the June meeting, said Mr. Pomeroy, who is also NAIC vp.
The full membership of the NAIC approved sending a firm message to Congress urging federal lawmakers to recognize the states' authority to regulate the business of insurance, especially the insurance activities of financial institutions. State insurance laws safeguard the solvency of insurers while protecting consumers, the resolution emphasized.
The NAIC split-rather than linked-its final voting session and Executive Committee meeting so they meet on Monday and Tuesday, respectively. By conducting the voting session before the Executive Committee meeting, which sets the voting agenda, no final votes could take place until the next quarterly meeting. That will add three additional months to the process by which the NAIC adopts measures.