NCOIL: Industry Halts Aftermarket Parts; Legislators Adopts CDS, Airbag Fraud Models

Neil Alldredge, NAMIC’s senior vice president of state and policy affairs, and Joe Thesing, assistant vice president of state affairs, attended the National Council of Insurance Legislators meeting Nov. 18-22 in New Orleans. Below is an overview of the meeting.

The staff of the National Conference of Insurance Legislators has been working hard to develop a provocative public policy agenda that attracts legislators and industry alike to their meetings. NCOIL’s November meeting Nov. 18-22 in New Orleans hosted 65 legislators and more than 200 industry advocates, suggesting that staff recruitment efforts have paid off. Legislators completed debate on credit default swaps and airbag fraud adopting model Acts on both issues.

Despite the robust attendance, the hearing of the most provocative issue – model legislation that would restrict competition in the aftermarket parts arena – was ultimately cancelled apparently because NAMIC and other industry advocates had convinced enough members of the Property/Casualty Committee that such legislation was harmful and unnecessary. Before arriving in New Orleans, NAMIC and other industry advocates, as well as advocates for auto manufacturers, contacted every member of the committee urging them to oppose the model. Soon after the conference began, rumors circulated that the committee would not vote on the proposal. Ultimately, Chairman Charlie Curtiss of Tennessee chose to cancel the committee meeting. The New Orleans meeting marks the conclusion of Curtiss’s tenure as chair of the committee. Thanks in part to lobbying efforts by the industry, Sen. Ruth Teichman of Kansas, NAMIC’s 2008 State Legislator of the Year, will return in 2010 as chair of the Property/Casualty Committee.

Subcommittee on Natural Disaster Insurance

The subcommittee continued discussion of a proposal offered by North Dakota Rep. George Keiser. The proposal provides the outline of a system of public-private natural catastrophe financing. The proposal urges states to have a long-term plan for providing financial support to address natural disasters and encourages states to “incentivize” insurer participation in state catastrophe pools. The concept paper also encourages mitigation. Keiser stated that he believes the private market can and should cover most losses but that most states don’t have the surplus to cover catastrophes. He went on to say that he is in strong support of actuarially sound rating and that pools should only cover “mega catastrophes.” Despite a variety of views on Keiser’s proposal, all parties agreed that actuarially sound rating, loss mitigation, and easy entry and exit into and out of markets are essential for success. No action was taken.

State and Federal/Financial Services Committees

Due to scheduling conflicts, joint meetings of the State and Federal and Financial Services Committees were held on Thursday and Friday. The primary charges of the committees were to take action on the Credit Default Swap and Market Conduct Annual Statement Model Acts. On Thursday, the State and Federal Committee heard reports on congressional activity regarding federal regulation. State and Federal Chairman Gregg Wren of Alabama encouraged NCOIL legislators to engage their members of Congress. The committee then heard testimony on the MCAS model, which the committee has been working on for some time. Consumer advocate Birny Birnbaum testified that the confidentiality provisions were not necessary and restricted consumer access to valuable information about company performance. NAMIC testified that we support the model but remain mildly concerned about the strength of the model’s “confidentiality” language. We went on to remind the committee that the debate has evolved since it first took up the issue and that the NAIC was now working toward a solution that would satisfy industry concerns. Therefore, we recommended that NCOIL slow down debate of the issue in an effort to allow the NAIC process to become clearer. On Friday, the State and Federal Committee heard additional testimony on MCAS, including a status report from the NAIC. NAMIC’s senior vice president, Neil Alldredge, also provided further testimony on why the model was needed, when complete. The committee decided that too many issues remained unresolved to move the model at this time, instead deciding to defer final action until the spring meeting in Charleston.

The Financial Services Committee convened on Thursday and heard testimony for the fourth time on the Credit Default Swap Model Act. NAMIC testified at a special hearing earlier this year in New York stating that CDS are not a form of insurance but are exotic financial products that should be regulated at the federal level. Rep. George Keiser encouraged the committee to adopt the model and was not influenced by the movement of derivatives legislation in Congress. The ACLI expressed concern that state regulation of CDS could stagnate innovation and could place a huge financial burden on state regulators. Upon Chairman Joe Morrelle’s arrival on Friday, the committee reconvened and quickly completed debate of the CDS model. The model was unanimously adopted by the committee.


Rep. Kurt Olson of Arkansas presided over the dialogue that included Commissioners Hudson of Ohio and Holland of Oklahoma. The committee members and commissioners expressed concerns over federal proposals to create a Federal Insurance Office and a Consumer Financial Products Administration. NCOIL President-elect Rep. Bob Damron of Kentucky stated that he and incoming NAIC President Commissioner Jane Cline of West Virginia would need to work very closely next year to ensure that the NAIC-NCOIL relationship moves in the right direction.

NCOIL legislators were very critical of commissioners and their proposal to create an Insurance Regulatory Commission that would function in a similar fashion as the current interstate compact dealing with life insurance. Primarily, legislators are concerned that no legislators are involved in the governance of the commission. Damron stated in no uncertain terms that NCOIL would not grant authority to the NAIC to run additional compacts. Damron went on to say that the Council of State Government’s National Center for Interstate Compacts was a more appropriate mechanism for managing compacts.

Special Property/Casualty Committee Meeting: Auto Insurance Fraud

At the NCOIL summer meeting in Philadelphia, the Property/Casualty Committee held its first hearing on a proposed model to address airbag fraud. The model establishes criminal penalties for fraudulent installation of airbag systems and provides additional notifications to consumers. The Philadelphia hearing to discuss the airbag fraud model, a seemingly innocuous topic, quickly devolved into a heated discussion of the viability of recycled or “non-deployed” airbags. In the months since the summer meeting, the committee held several conference calls in an effort to gain legislator consensus on the model. Throughout the process, NAMIC stated that we support fraud laws that prohibit the installation of phony airbags but have not taken a position on the issue of recycled or “non-deployed” airbags. In New Orleans, Rep. Brian Kennedy of Rhode Island opened the committee meeting by encouraging members to support the model, which he sponsored. Kennedy stated that the model, which was introduced to address fraud, had been “hijacked” by interested parties intent on either protecting or prohibiting the use of recycled airbags. Kennedy pointed out that neither side had produced studies that either confirmed or debunked the viability of recycled airbags. The committee then pursued a lengthy debate over an amendment to require installers of recycled airbags to apply a sticker on the dashboard stating that the vehicle contained a salvaged airbag. The amendment was ultimately adopted as was an amendment offered by Chairman Charlie Curtiss adding the following drafting note: “Each state should consider giving the regulator the authority to develop a process to certify aftermarket crash parts and choose or authorize a certifying agency or agencies.” Some committee members stated that consideration of the model should be postponed until studies can be produced regarding the viability of recycled airbags. In the end, the committee rejected this strategy, adopting the model by a vote of 20-4.

Executive Committee

The Executive Committee met early Sunday morning and unanimously adopted the CDS and Airbag Fraud Model Acts. The Executive Committee made leadership and committee appointments. Rep. Bob Damron assumed the presidency; Rep. George Keiser becomes president-elect; Sen. Carroll Leavell of New Mexico becomes vice president; Sen. Vi Simpson of Indiana becomes secretary; and Rep. Charlie Curtiss of Tennessee becomes treasurer. As mentioned above, Sen. Ruth Teichman was appointed chair of the Property/Casualty Committee.

Direct questions to NAMIC’s Assistant Vice President of State Affairs Joe Thesing or Senior Vice President of State & Policy Affairs Neil Alldredge.