2016 STATE LEGISLATIVE & REGULATORY PRIORITY ISSUES
To see a list of all state and federal issues which have the potential to affect NAMIC members companies, and to learn more about them, please visit the Legislative & Regulatory Issues page.
NAMIC’s top agenda priority remains the adoption of modernization laws creating rate-approval standards less restrictive than prior approval. NAMIC continues efforts to identify opportunities to introduce modernization proposals across the country.
NAMIC will continue to engage in dialogue with industry colleagues and legislators in an effort to craft legislation eliminating redundant and inefficient laws affecting insurance companies. Read more >>
Efforts to ban or severely limit the use of credit-based insurance scoring and other underwriting tools were relatively limited in 2015, and no such bills advanced. NAMIC continues to work with legislators and regulators in Alaska to expand the use of insurance scoring to policy renewals. NAMIC expects that at least a moderate level of opposition to credit-based insurance scoring will persist for the foreseeable future. For many years, insurers have applied depreciation factors to both the labor and materials for actual cash value policies and replacement costs policies, and they have priced their premiums accordingly. NAMIC will oppose regulatory and/or legislative efforts to require insurers to calculate actual cash value policies by separating labor costs from material costs and applying depreciation only to the material costs. Both labor and materials appropriately constitute the value of property, and the cost of the damaged property over time should be depreciated as such for actual cash value policies and for replacement cost policies in cases where property is not repaired. Prohibiting labor depreciation is based on the incorrect assumption that the value added to property by labor never depreciates.
NAMIC will remain vigilant in defending the use of other underwriting tools, including education and occupation, telematics, and other “big data” predictive modeling tools such as price optimization, which will likely receive continued scrutiny from regulators and legislators.
NAMIC continues to work throughout the country to educate regulators and legislators about the negative impacts of enacting overly restrictive regulations and legislation pertaining to property insurance markets. It is likely that legislation will be seen relating to private flood insurance, anti-concurrent causation clauses, and similar issues in 2016 and beyond.
During the past several years, the business community has had some success combating unscrupulous home repair contractors who try to dupe consumers following hail and wind storms. Thanks in part to NAMIC, more than 20 states have passed legislation to protect consumers from fly-by-night contractors; however, these laws lack consistency from state to state. In one of the fastest debates in the history of the National Conference of Insurance Legislators (nine months from start to finish), the organization in 2015 adopted “storm chaser” model legislation. The model pulls language from some of the better state enactments. The model includes registration requirements, requires written contracts, includes a three-day cancellation period, provides consumers with the right to rescind, and includes an expedited process for firms registered in other states. NAMIC will work with industry partners this year to pursue this model in as many states as possible.
The business community was mostly successful last year in staving off attacks from the trial bar. Negative proposals focused on bad faith, private right of action, and increases to non-economic damage caps. That said 2016 could shape up to be a very challenging year for battling the trial bar. States to keep an eye on will include Maryland, Missouri, New Jersey, New York, Oregon, and Virginia.
NAMIC continues to lead insurance industry advocacy efforts on third-party litigation funding. Thanks in part to NAMIC, Arkansas became the second state in the country (Tennessee was the first) to enact legislation to cap the interest rates that these lenders can charge. States worth watching in 2016 include Arizona, Colorado, Illinois, Indiana, Iowa, Missouri, New Jersey, Vermont, and Wisconsin.
In several states last year legislatures considered removing or modifying the statutes of limitation for child sexual abuse claims.
NAMIC will continue to monitor such efforts and will coordinate its response with civil justice advocates.
The NAIC is currently engaged in a substantial effort to enhance solvency, corporate governance, and enterprise risk regulation. The important pieces that are advancing in the states are changes to the Model Holding Company Act (2010 and 2014) and the adoption of the model Own Risk and Solvency Assessment. NAMIC has made significant efforts during the past two years to convince regulators to provide a compliance threshold or regulatory flexibility for smaller companies related to the Enterprise Risk Report portion of the Holding Company Act revisions. To date, NAMIC has succeeded in securing this type of provision in 13 states (Alabama, Florida, Hawaii, Idaho, Indiana, Kansas, Louisiana, Maine, Missouri, Ohio, Texas, Virginia, and Wisconsin). As of this writing, 34 states have enacted the ORSA model. NAMIC advocates have spent significant time working with regulators and legislators to ensure that the confidentiality language in the ORSA proposals is sufficient.
Also gaining traction in the states are the 2014 changes to the Holding Company Act, the Model Corporate Governance Annual Disclosure Act/regulation, and the Model Credit for Reinsurance Act/regulation. The 2014 changes to the Holding Company Act include the addition of the designation criteria and authorities of a group-wide supervisor for international companies. In 2015, 13 states adopted the 2014 model revisions or some version of these revisions. This language allows a U.S. state to act as the group-wide supervisor in an international supervisory college for a U.S.-based international insurance group. This model may not be an accreditation standard, but several states will adopt it if they have a domiciliary company that is part of an international insurance group.
The Model Corporate Governance Annual Disclosure Model Act was adopted at the NAIC in 2014 and was enacted in five states in 2015 (California, Indiana, Iowa, Louisiana, and Vermont). The model requires companies/groups to file the disclosure with their lead state on an annual basis. The disclosure will include the information set forth in the model regulation that is necessary for the insurer to gain an understanding of its corporate governance structure, policies, and practices. This model is in the process of becoming an NAIC accreditation standard, but it will likely not be required until the end of 2019. NAMIC expects more legislative activity on this model in 2016.
The Model Credit for Reinsurance Act/regulation was adopted at the NAIC in 2011. In 2015, NAMIC changed its position on this model to one of support. The model is a hybrid NAIC accreditation standard that requires states to adopt the model if they take any action to change their laws on credit for reinsurance. This model revises the collateral requirements for foreign reinsurers. It considers both regulatory requirements of the country of domicile and individual criteria about foreign reinsurers to assess collateral requirements instead of requiring 100 percent collateral for all foreign reinsurers. Thirty-one states have passed the model act representing more than 66 percent of the reinsurance market. There are NAIC efforts to make this model a full accreditation standard and to pass it in all states to avoid federal activity on this issue.
Sectors of the auto repair industry continue efforts to pass legislation that would restrict consumer options regarding auto repair and deliberately limit the information insurers can make available to consumers, thereby impairing the ability of consumers to make informed decisions on repairing their vehicles. Some proposals include language that may impose excessive restrictions on insurers’ constitutionally protected commercial free speech. It is likely that Connecticut, Maryland, and Rhode Island will remain major battlegrounds in the coming years over customer choice in auto repair. In addition, discussions have begun in some states regarding legislation aimed at creating an adjuster licensing requirement in response to allegations from direct repair facilities claiming that adjusters are “steering” consumers away from non-DRP providers.
In late March of last year, insurance industry advocates were approached by Uber with a “National Compromise” model bill. Although not perfect, the Uber compromise, among other provisions, clearly states that the transportation network company driver or TNC has primary responsibility for coverage in Period One (“App On”). NAMIC, the other national trades, and many individual insurers have endorsed the compromise. NAMIC continues to work closely with local advocates in each state to ensure that legislative enactments include the compromise language. As of this writing, legislation that adequately addresses Period One coverage has been adopted in 24 states: Arizona, Arkansas, Georgia, Idaho, Indiana, Kansas, Louisiana, Maine, Maryland, Montana, Nebraska, Nevada, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, and Wisconsin. (Kentucky addressed the insurance industry’s issues by regulation.) In 2014, laws were adopted in California, Colorado, and Illinois (this law does not appropriately address Period One coverage). NAMIC will continue working with industry partners this year in an effort to pass the national compromise in additional states.
NAMIC will work with industry colleagues this year on efforts to create a legislative and regulatory framework to address other “shared economy” business models that have implications for personal insurance policies.
During the past three years, the insurance industry has enjoyed some success in shepherding adoption of legislation allowing for the proof of insurance by use of an electronic device and proposals allowing for the electronic distribution of notices as well as language providing insurers with the ability to provide policy forms to customers electronically. NAMIC will continue working with industry partners to adopt similar proposals in additional states.
A new horizon exists for insurance companies due to technological advancements in electronic commerce and customer interfaces, automated and driverless transportation, and proliferation of drones and robotics into the mainstream. With these advancements come challenges in both the physical and cyber world. NAMIC will seek solutions to the risk management, legislative, and regulatory changes that lay ahead for insurers as these new technologies integrate themselves into society and the business sector.
Targets of Opportunity
Insurers are subject not only to a wide range of general consumer protection laws and regulations applicable to all businesses but also to scores of highly specialized ones tailored to insurance practices, which create significant and ongoing compliance challenges. To promote compliance as a consumer protection, insurers should be able to conduct self-audits of their practices that may warrant correction without such audits being used against them in litigation by third parties. Since 1997, 11 jurisdictions (Arizona, Hawaii, Illinois, Kansas, Michigan, New Jersey, North Dakota, Oklahoma, Oregon, Texas, and Washington, D.C.) have recognized the value of a self-evaluative privilege for insurers with statutory enactments for the most part based on a National Conference of Insurance Legislators model act. NAMIC will seek out opportunities to have the privilege adopted by more states so it has utility for insurers operating in those jurisdictions.
NAMIC will continue to watch for attempts by state legislators to increase insurer tax burden in order to shore-up state pension funds and other state obligations. As needed, NAMIC will continue efforts to educate legislators about the impact such efforts could have on insurance premiums.
Early in 2013, the NAMIC Board of Directors created a Mutual Structure Task Force to work with staff to propose a Principles Statement to help guide advocacy when it comes to legislative efforts related to mutual insurance holding company and demutualization laws. The task force developed a set of principles that were adopted by the board in September 2013.
NAMIC supports laws and regulations that advance the continuation and health of the mutual insurance company structure. NAMIC recognizes that many mutual insurers use the mutual insurance holding company model as a viable and long-term operating structure while retaining mutuality as a core value. NAMIC acknowledges the need for laws that allow companies to change their organizational structure and supports the ability of a business to pursue different options in order to remain viable. NAMIC views demutualization as an option of last resort, not as a matter of operational preference. NAMIC will support legislation that preserves the membership rights of mutual insurance company policyholders and preserves surplus built up over time by past policyholders for the benefit of present and future policyholders.
NAMIC continues to focus on targeted areas for reform. Areas of emphasis for this year will remain opioid abuse and fee schedules. NAMIC will also closely monitor any additional attempts made by a large broker to become the administrator of state workers’ comp assigned risk pools.
Last year, legislation was introduced in South Carolina and Tennessee to allow qualified employers to “opt-out” of laws requiring employers to provide workers’ compensation insurance benefits. These laws are intended to allow employers to create alternative benefit plans for injured workers rather than providing traditional workers’ compensation coverage for employees. NAMIC expects additional legislative activity on this topic this year.
The regulatory burden on insurers continues to grow, often without clear purpose or a sense of the cost by regulators. NAMIC supports a vibrant state-based system of regulation and understands that much of the increasing regulation by the states is necessary in order to deal with a more complicated market as well as to ward off worse overregulation by federal and international regulators.
NAMIC will continue to oppose inappropriate regulatory actions, such as:
The climate survey, which serves a narrow ideological agenda to the detriment of fundamental insurance oversight;
A growing tendency by some regulators to ignore the core state-based principle that state regulators should defer to the regulator of the insurer’s domicile on matters affecting the company;
Excessive financial examination fees;
Outdated product and rate filing mechanisms; and
Abusive market conduct examination practices.
NAMIC is working in concert with member companies to reform or repeal broken no-fault auto insurance systems in states where the environment is ripe for real reform. NAMIC continues to work with industry advocates, regulators, and legislators in Michigan. The industry made more progress last year than ever before, and NAMIC will continue to push the ball forward this year. NAMIC will also continue to work with industry partners to enact reforms in other states as needed.
NAMIC has assisted farm mutual member companies in several states during the past few years with revising their governing statutes. Although enactments have varied from state to state, most allow for new geographic territory for farm mutual companies and eliminate outdated and sometimes contradictory sections of the code. NAMIC will continue to pursue progressive proposals that will help ensure the future viability of farm mutual companies.
Posted: Wednesday, June 27, 2012 2:09:57 PM. Modified: Friday, June 24, 2016 12:46:27 PM.
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