Industry Issues | ERM & Emerging Risks

Emerging Risk: Regulation (NAIC)

Regulation (NAIC)
(risk assessment: financial, operational, regulatory, reputational, legal/compliance)

The NAIC continues its deliberations on many industry issues that will have a major impact on the future of the insurance marketplace. At its August meeting, the NAIC discussed risk-based pricing and cost drivers; looked at best practices for data analytics; considered a new industry-supported group capital calculation; circulated a new proposal to regulate insurers' consumer disclosures on rate increases; and examined next steps on auto data compiled by statistical agents.

Risk-Based Pricing and Cost Drivers

PCI addressed the NAIC/Industry Liaison Committee on the critical importance of regulators continuing to support risk-based pricing. PCI also used the opportunity to address rising costs due to litigation, auto body repairs, distracted and drugged driving, and proposed tariffs.

Data Analytics

PCI hosted a series of roundtable discussions with member companies and key regulators and their staff on product innovation and predictive analytics. The discussions focused on the barriers that companies and regulators are facing concerning product innovation, including statutory restrictions such as 30-day cancellation notices and anti-rebating statutes. The conversations also looked at ways insurers are using data from third-party vendors, including auto-filling forms and using information to more accurately assess risk. The roundtable discussions provided an opportunity for members and regulators to examine difficult issues in a positive and productive forum and underscore how the use of data supports risk-based pricing of insurance products. This was a new PCI format for company and regulator engagement during the NAIC and, based on member feedback, the format will continue.

PCI will remain heavily engaged with the Big Data Working Group as it develops a best practices guide for predictive modeling this fall. NAIC staff reported their continued efforts to assess the resources that states need in the review of predictive models. They are also looking at potential new guidelines for state insurance and general data protection laws. The NAIC is considering hiring additional staff to support these efforts, although the NAIC reiterated that states would maintain their regulatory authority.

Meanwhile, the Casualty Actuarial and Statistical Task Force will be drafting a report on predictive analytics this fall as part of its Product Filing Review Handbook. This is expected to include: source of data; what data is selected and how it's verified; review of the model; the model output; and what information should be provided to regulators. PCI is engaged in providing feedback.

Group Capital Calculation (GCC)

The Group Capital Calculation Working Group exposed for 45 days a memo drafted by PCI and the other property casualty trade associations intended to guide field testing of the GCC and determine which entities in a group will be included in the calculation. Along with the memo, NAIC staff will draft a series of questions about these recommendations that will be included in the exposure. PCI hopes this will be a significant step forward in advancing development of the GCC to the point where field testing can begin in early 2019. Regulators reiterated that the GCC is intended to be a financial analysis tool and not an enforceable capital standard.

Transparency and Readability of Consumer Information Working Group

The Transparency and Readability of Consumer Information Working Group presented a wide-ranging proposal to regulate insurers' disclosures to consumers regarding rates increases.

Regulators from multiple states shared stories of consumer complaints regarding complex models and the inability of regulators and even the companies to respond effectively to the concerns. The consumer advocates supported more disclosures, with United Policyholders proposing that when rates increase consumers should be provided reasons such as change in risk profile, change in overall rate, and/or change due to a claim.

PCI called on the group to refrain from imposing new mandates or adopting a Fair Credit Reporting Act (FCRA) approach to disclosures, but instead survey the states to determine best practices. The working group is requesting additional comments. PCI will continue to monitor this project and engage with its working group.

Auto Insurance Working Group

The Missouri Insurance Department presented its new reports on auto insurance affordability and loss costs in the state, as well as a strong critique of ProPublica's 2017 analysis of territorial rating. PCI applauded the Missouri research and thoughtful analysis in a news release to the media.

The Auto Insurance Working Group hosted more discussion on a proposed report that would release statistical agents' aggregate national ZIP code auto premium and loss cost data. Consumer activists argued against an NAIC interpretive report and wanted the raw data released in full. PCI supported issuing a report like that of Missouri, if the data is to be released. PCI strongly opposed any new data calls.

The working group will field comments for two weeks on the proposed auto data report and the release of the statistical agents' aggregate national ZIP code auto premium and loss cost data.