Regulatory Reform, Annuity Sales, Credit Scoring on Tap for NAIC Meeting

Beltway traffic won't be the only thing keeping regulators and attendees tied up at the National Association of Insurance Commissioners' fall meeting in National Harbor, Md., this week, with key developments on annuity sales, credit-based insurance scoring and the NAIC budget on the agenda.

The Government Relations Leadership Council is expected to discuss a new NAIC proposal, still in the drafting stage, to increase the uniformity of insurance regulation while preserving the state-based system. The National Insurance Supervisory Commission, an entity which would prod states to adopt consistent rules, is envisioned as a response to the Obama administration's regulatory reform proposals. The Obama plan called for insurance proposals to reflect "increased national uniformity through either a federal charter or effective action by the states" (BestWire, June 17, 2009).

Kansas Insurance Commissioner Sandy Praeger said the proposal indicates that the NAIC is making regulatory modernization a priority. Industry representatives are expressing caution. Deirdre Manna, of the Property Casualty Insurers Association of America, said any reforms should be consistent with the current regulatory approach.

The NAIC's Property and Casualty Insurance (C) Committee and Market Regulation and Consumer Affairs (D) Committee will hold another joint hearing on the practice of credit-based insurance scoring. The two bodies met in the spring and again at the NAIC summer meeting without reaching a consensus on what, if anything, to do about the issue.

A potential new draft on annuity sales suitability is a focus for life insurers. A working group is looking at whether the current suitability model, adopted less than four years ago, meets the current needs of the marketplace. Some insurers and regulators have asked for more specificity from the existing model (BestWire, Sept. 22, 2008). The concept of who is responsible for reviewing for suitability concerns -- insurers' home offices, broker-dealers, an independent third party, is one issue.

"The bigger concern is the concept of just opening it up at all," said Paul Graham, chief actuary for the American Council of Life Insurers. "Let it work for a couple of years...see how it's going."

The current Suitability in Annuity Transactions Model Regulation, which applies to consumers of all ages, seeks to impose on life insurers an express obligation to ensure their variable annuities are sold to suitable parties. It also imposes suitability requirements on the purchase or exchange of fixed annuity policies, similar to the federal requirements imposed on broker-dealers and other investment advisers for variable annuity sales (BestWire, Feb. 25, 2008).

A new version of the Standard Valuation Law drafted to provide more uniformity in life insurance reserve requirements across states, will be on the NAIC's Executive Committee and Plenary agenda (BestWire, Sept. 11, 2009). Following Executive/Plenary approval would come the more detailed and significant step of drafting a first-ever valuation manual to guide implementation, Graham said.

"The devil's in the details and the details in this case are in the valuation manual," he said.

Scheduled to be released during the meeting is the NAIC's draft 2010 budget, for which association officials have predicted a shortfall due to the recession (BestWire, Aug. 17, 2009). The NAIC has implemented cutbacks in the current budget year, including a hold on salary increases, no funding of new positions and adjustments to the travel budget.

The current budget anticipated $73.1 million in revenues, a 7.1% increase, and a 74.4 liquid reserve ratio, up from 67.6 for the end of 2008.

"We're hopeful they're more mindful of the situation affecting our members," said Neil Alldredge, senior vice president of state and policy affairs for the National Association of Mutual Insurance Companies.