Updated Environmental, Social, and Governance Considerations for Property/Casualty Insurance
Following up on NAMIC’s 2019 introductory ESG paper, this new white paper further defines the movement for greater social responsibility for companies and suggests how mutual insurance company senior management and boards of directors can better consider such actions in today’s tumultuous climate while maintaining the requisite duty of care and loyalty to their companies to which they are legally and morally bound.
The Next Iteration of Holding Company Regulation — What Does it Look Like and What Should be Different?
This paper examines recent changes to holding company laws and regulations and how the new GCC tool fits in within the existing framework. The paper includes a brief summary of recent holding company changes, followed by a review of the breadth of financial and risk information that lead state regulators already receive as part of their oversight duties. Finally, the paper concludes with a discussion about alternatives the NAIC should consider to tailor holding company regulation to the size and complexity of the IHCS.
Liability Standards for Automated Vehicle Shared-Driving Crashes
Determining exactly what happened in a car crash is often very difficult. That determination will be exponentially more difficult in crashes where a car has a human driver and automated driving capabilities. Existing legal standards for allocating liability in car crashes are not designed to consider non-human “drivers”; and the absence of specific guidance and definitions will leave legislators, regulators, judges, and juries ill-equipped to make important determinations in this space. Auto insurance companies will benefit from a greater understanding of how the proper application of local legal standards and duties to such vehicles will ensure that actual losses are evaluated better and recovery potential can be improved.
The State Rating Statutes and Constitutional Policymaking: Causation and Disparate Impact Standards in NAIC’s Draft White Paper
Nat Shapo, partner at Katten Muchin Rosenman LLP and former director of the Illinois Department of Insurance and National Association of Insurance Commissioners executive committee member, outlines significant concerns regarding the NAIC Casualty Actuarial and Statistical (C) Task Force’s draft Regulatory Review of Predictive Models White Paper. Among those is that it directs regulators to require a showing of causation/intuitiveness for, and to apply a disparate impact/proxy variable standard to, all rating factors with no basis in controlling law.
CCPA: A Model to Follow or Avoid? Questions to Consider
Consumer data security and privacy protections have been a long-standing and top concern for insurance companies. Recently, there has been a flurry of activity in the privacy space, with the most widely discussed efforts happening in California. This paper provides a brief consideration of the California Consumer Privacy Act from an insurance industry perspective. It is not intended to address the specific requirements for compliance or implementation, but to instead raise important questions and issues for discussions of whether it is timely for other states to consider CCPA as a model for their privacy framework.
Responsibility Assessment Standards for Conditional Automation/Dual Control Vehicles
There are tremendous efforts underway to develop and deploy automated vehicles, utilizing complex computer and mechanical systems to perform driving operations. In this paper NAMIC proposes the need for standards that define what Conditional Automation/Dual Control Vehicles can and cannot do before they are operated on the public roads.
Getting Value Out of Your Next Financial Examination
Financial solvency regulation in the insurance industry has undergone monumental change over the last decade, and it is the financial examination that companies undergo every three to five years that has been impacted the most. As regulators and insurers alike seek to find their way in a post-financial crisis environment, this paper explores the history of the financial examination, the introduction of the risk-focused approach, cost drivers such as duplication and outsourced regulation, and some potential solutions to make the financial examination a better value proposition for the company being examined.
The Deleterious Effects Expansive Bad-Faith Litigation Has on Insurance Markets
An at times antiquated concept of “bad faith“ still thrives in many U.S. jurisdictions and its employment continues to grow in others. General acceptance and complacency concerning these allegations should not stifle a continuing debate as to the efficacy of such causes of action, which are in many cases redundant to state insurance regulation. While legitimate claimants who are routinely and efficiently paid by insurers on a timely basis, the paper seeks to point out that as “bad-faith“ claims have developed over the last century, some of the rationale for their existence is no longer operative.
Insurance Drone Operations: 2020 Law and Regulation
Law and regulation of drone operations for insurance companies and other operators is complex and evolving. As permissible drone operations are better defined and proliferate, attendant questions of the rights of people and property subject to drone flights will become more and more of an issue. As insurance drone operations “do’s” and “don’ts” develop nationally and locally, this snapshot of rules and predictions of future developments is offered for insurance companies to better understand the terms and conditions in which they may operate drones.
CECL: How an Obscure Accounting Change Could Negatively Impact Insurers
The Financial Accounting Standards Board issued an accounting standard update in June of 2016 that introduced the current expected credit-loss, or CECL, methodology for estimating allowances for credit losses. The standard takes effect for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. All other organizations will have an additional year for implementation. There are many things property/casualty insurance companies need to be aware of in relation to the new CECL standard, and this paper attempts to describe how FASB arrived at its decision to introduce an expected credit-loss concept and explain how that applies to mutual insurance companies.
Understanding the Terrorism Risk Insurance Program
Since the events of September 11, 2001, the federal government has developed a robust and sophisticated counter-terrorism apparatus that has thus far succeeded in preventing large-scale terrorist attacks on the United States homeland. However, the threat of terrorism is continuing to evolve amid a changing, unstable, and dangerous international environment. This paper explores the TRIA program, a risk-sharing model between insurers, policyholders, and the federal government that has acted to create space for a robust private market for terrorism insurance to form where it would not have otherwise.
Curbing a Questionable Practice: A Survey of Public Policy Measures to Address Concerns Surrounding Litigation Funding
Litigation funding1 has developed into a significant public policy issue of concern for insurers and others affected by litigation over the past twenty years. NAMIC and other organizations have worked to secure meaningful public policy measures aimed at better understanding and ultimately curbing the problems associated with litigation funding. The purpose of this paper is to better understand the remaining challenges and opportunities by surveying some of the recent public policy developments in the litigation funding space. (Published 1/28/19)
Group Capital and U.S. Insurance Regulation
A better understanding of why the U.S. insurance regulators and industry cannot agree to an EU-type capital requirement may provide some context for meaningful discussions at the G20, the FSB, Congress, and among other policymakers before such a standard is adopted. In this paper, NAMIC provides background about the U.S. insurance supervisory system and group capital efforts at the IAIS, National Association of Insurance Commissioners, and Federal Reserve to outline the real need for a directional change at the IAIS.(Published 12/21/18)
Developments in Insurance Company Drone Use
This third white paper in the continuing series provides a snapshot of the way insurance companies use drones to provide insurance services. This overview also aims to give insurers an understanding of the developments that provide opportunities for, and obstacles to, drone use. The paper concludes with a review of the important advocacy efforts that have been undertaken to expand those opportunities and overcome the obstacles. (Published 12/10/18)
Cannabis: From Criminality to Commercial Enterprise
"Cannabis: From Criminality to Commercial Enterprise" explores the issues and complexities at the intersection of the insurance industry and the burgeoning cannabis industry, including a review of the legal landscape surrounding it. While the legalization of marijuana can be a politically divisive subject, there is value in insurers developing an understanding of how the issues at play will affect their companies. (Published: 11/1/2018)
The Mutual Factor: How Performance, Structure, and Focus Sets Mutual Insurance Companies Apart
“The Mutual Factor” provides an analysis of the marketplace performance of mutual property/casualty insurance companies. Distinctions in key metrics of operating performance between mutual and stock insurers, and the insurance industry overall, during 2017 are highlighted. “The Mutual Factor” also offers survey data related to subjective factors such as customer satisfaction with respect to both the mutual and non-mutual sectors. (Published: 9/21/2018)
Understanding the Evolving Cybersecurity Standards Landscape for Insurers
The amazing benefits of a technologically advanced and interconnected society have not been attained without the price of sobering exposure to substantial and even potentially catastrophic harm. As Congress, state legislatures, the National Association of Insurance Commissioners, and state insurance regulators have proposed and/or adopted a variety of public policy measures affecting insurers in response to the cybersecurity threat, it is worth assessing how cybersecurity regulation efforts should and do function within the broader scheme of insurance regulation. (Published: 7/12/2018)
Validating Safety: The Next Phase in Developing Automated Driving Systems
The development of Automated Driving Systems (ADS) may be the most consequential transportation issue of our time. New technology and novel service strategies promise faster and better mobility that will be less expensive, and more environmentally friendly. Spring boarding from existing and widely accepted “assisted driving” systems such as cruise control, ADS developers promise a wider array of functions from greater driver assistance to vehicles that will perform every driving operation with no human intervention (Published: 5/2018)
Blockchain: What Possibilities Lay Ahead for Property/Casualty Insurers
The potential of blockchain to revolutionize the business of insurance is commanding a great deal of attention within the industry. Now is the time for property/casualty insurance professionals to start looking at the possibilities for future application of this technology to securely share information with policyholders, competitors, suppliers, or others. (Published: 3/2018)
Insurance And The Evolution of Automated Driving
Fully autonomous cars are likely decades away. But as the line between car and driver blurs, NAMIC examines the questions surrounding autonomous vehicle technology, and what it means for the insurance industry. (Published: 4/2017)
Unmanned Aircraft: Defining Private Airspace
You can have your neighbor removed from your yard, but according to the Federal aviation Administration you cannot stop his drone from flying directly over your property. As the Use of unmanned aerial systems grows more commonplace, Tom Karol, NAMIC general counsel – federal, explains how the FAA’s broad interpretation of navigable airspace for drones has overturned a centuries-old understanding of property rights and could eliminate many privacy protections. (Published: 3/2017)
What It Means to be Mutual
Lawrence S. Powell, Ph.D., executive director of the Alabama Center for Insurance Information and Research, sets out to describe how mutual insurance companies differ from other insurance companies in this paper that reviews numerous peer-reviewed academic journal articles and books, and insurance industry data from the National Association of Insurance Commissioners database. What he found was several distinct mutual-insurer traits that appeared consistently in his analysis. (Published: 3/2017)
Best Practices for Regulating Property Insurance Premiums and Managing Natural Catastrophe Risk in the United States
As a response to the Federal Insurance Office’s 2013 report that called on state-level policymakers to identify and implement best practices with respect to insurance rate regulation and natural disaster mitigation, Patricia Born, Ph.D., Florida State University, and Robert Klein, Ph.D., Georgia State University, examine the features of state regulatory environments that serve either to mitigate or exacerbate the adverse effects of natural catastrophes on property insurance markets. The paper addresses four areas of regulation: regulation of rates and underwriting practices; administration of residual market mechanisms; regulation of insurance policy provisions; and regulation of claim settlement practices. (Published: 11/2015)
Unmanned Aerial Systems/Drones - Regulation, Liability and Insurance Requirements
With commercial use of unmanned aerial systems, more commonly known as drones, expected to rapidly increase, Tom Karol, NAMIC general counsel – federal, examines the often overlooked and as yet unresolved questions about how such systems would be covered for loss, damage and liability, and how this emerging technology could also impact insurer operations. The regulatory structure for commercial drone use – in terms of not only how drones can be used but also who is allowed to use them for commercial purposes – is still in the early stages of its development. In the paper Karol outlines how decisions from federal, state, and even local policymakers could impact insurance coverage for UASs. (Published: 2/2015)
"Unnecessary Injury: The Economic Costs of Imposing New Global Capital Requirements On Large U.S. Property and Casualty Insurers," by Robert Shapiro, Ph.D.
This paper offers a look at the potential costs of current efforts toward globalization of financial standards that began in the wake of 2008-2009 financial crisis. Based on his extensive research, Dr. Shapiro projected the potential costs of such standards for consumers at as much as $109 in increased homeowners insurance premiums, and found that the standards could slow the growth of insurance offerings by as much as $7.3 billion each year. Shapiro, the chairman of Sonecon, LLC, a private firm that advises U.S. and foreign businesses, governments, and non-profit organizations on market and political conditions affecting economic policy and security matters, and has served as an advisor to former President Bill Clinton and former British Prime Minister Tony Blair, among others. (Published: 11/2014)
Insurance Regulation and the Challenge of Solvency II: Modernizing the System of U.S. Solvency Regulation
Significant changes in insurance regulatory policies and practices at an international level, including the European Union’s Solvency II directive, have prompted U.S. regulators to reconsider the current system of insurer solvency oversight. This paper provides a comprehensive review and analysis of the current U.S. system of solvency regulation, and describes and assesses the five principal components of the National Association of Insurance Commissioners’ Solvency Modernization Initiative. This is followed by an evaluation of the NAIC’s risk-focused surveillance framework and current U.S. regulatory policies and practices with respect to insurance prices, products, and market conduct. The paper concludes with a summary of the key findings in each of these areas and their implications for the future of insurance regulation in the U.S. (Published: 11/2012)
No-Fault Insurance at 40: Dusting Off an Old Idea to Help Consumers Save Money in an Age of Austerity
In 1971, Massachusetts became the first state to implement a no-fault law, but since 1975, no state has enacted a similar law. The authors of this paper argue that no-fault was never given a chance in its intended form, and the failure of the state laws to lower premiums lies not in the no-fault concept itself, but because the laws were structured in such a way as to undermine the law’s effectiveness. The authors also argue that in a time when government deficits will result in lower benefits and higher costs for Americans on many fronts, property structured no-fault laws – ones that take advantage of the new national health insurance law to reduce medical costs and give consumers the option to elect not to sue for pain and suffering – could enable consumers to save tens of billions of dollars a year. (Published: 12/2011)
Consumer Choice in Automobile Repair Practices
Insurers’ use of direct repair programs and aftermarket cosmetic crash parts has come under attack in state legislatures and courts by groups whose economic interests are threatened by these practices. These groups – which consist primarily of non-DRP shops and manufacturers of OEM parts – contend that insurers’ use of DRPs and aftermarket parts forces consumers to accept shoddy repairs performed by substandard shops using inferior replacement parts. These claims do not withstand scrutiny. Robust competition in the U.S. automobile insurance market has created strong incentives for insurers to find ways to both reduce the price of insurance for consumers and to ensure that their customers experience a high level of satisfaction with the vehicle repair process and outcome. (Published: 9/21/2010)
The Financial Crisis, Systemic Risk, and the Future of Insurance Regulation
The bursting of the housing bubble and resulting financial crisis have been followed by the worst economic slowdown since the early 1980s if not the Great Depression. This Issue Analysis considers the role of AIG and the insurance sector in the financial crisis, the extent to which insurance involves systemic risk, and the implications for insurance regulation. It provides an overview of the causes of the financial crisis and the events and policies that contributed to the AIG intervention. It considers sources of systemic risk, whether insurance in general poses systemic risk, whether a systemic risk regulator is desirable for insurers or other non-bank financial institutions, and the implications of the crisis for optional federal chartering of insurers and for insurance regulation in general. (Published: 9/22/2009)
First-Party Insurance Bad Faith Liability: Law, Theory, and Economic Consequences
The idea that insurers should be penalized for unfair claim settlement practices involving first-party insurance coverage is a relatively recent development in the long history of insurance law. Today, many states allow for recovery of consequential, or incidental, damages, attorney’s fees, and prejudgment interest, as well as the benefit owed under the policy, in a first-party insurance bad faith case. The paper concludes that certain features of recent legislation in several states will create incentive distortions that may lead to greater uncertainty and higher costs for insurers, higher levels of insurance fraud, and correspondingly higher insurance premiums for consumers. (Published: 9/26/2008)
The Assault on the McCarran-Ferguson Act and the Politics of Insurance in the Post-Katrina Era
Seven of the ten most costly hurricanes in the history of the United States occurred in a 14-month period spanning parts of the 2004 and 2005 hurricane seasons. In response to perceived problems related to insurance industry claims and underwriting practices following these storms, some policymakers are offering legislation that would repeal a provision of the McCarran-Ferguson Act of 1945 that gives insurers a limited exemption from federal antitrust laws. (Published: 9/21/2007)
Auto Insurance Reform Options: How to Change State Tort and No-Fault Laws to Reduce Premiums and Increase Consumer Choice
Starting in the early 1970s, 16 states adopted no-fault laws as a way to reduce premiums, although no-fault also promised better compensation by eliminating much of the lawsuit system with its high overhead costs of attorneys and pain and suffering awards. The momentum towards no-fault stopped in the late 1970s, and much of the debate since then has been over whether to reform or repeal the no-fault laws. Where this debate has occurred, all too often the proposed reforms were transparent attempts to maintain the status quo, leading interest groups and policymakers who would normally support the no-fault concept to reject disingenuous “reforms” in favor of outright repeal. (Published: 10/4/2006)
Insuring the Uninsurable: Private Insurance Markets and Government Intervention in Cases of Extreme Risk
For some risks, private insurance markets are unable to provide sufficient coverage to meet society’s needs. These risks – commonly called extreme or catastrophic risks – are uninsurable through conventional insurance markets because they defy the conditions private markets require for operation. A review of federal government programs shows that they bear less resemblance to insurance than to targeted public spending or risk management programs aimed at discharging the government’s sovereign responsibilities of providing national and economic security and economic stabilization. These programs do not confer on federal agencies any particular expertise in providing or regulation insurance and, therefore, such programs should not be considered justification for federal regulation of private insurance markets. (Published: 6/21/2005)
It’s Time to Admit that SOX Doesn’t Fit: The Case Against Applying Sarbanes-Oxley Act Governance Standards to Non-Public Insurance Companies
The National Association of Insurance Commissioners has developed a proposal to incorporate elements of the Sarbanes-Oxley Act into the insurance laws of every state. These rules would be applied to thousands of mutual insurance companies, which by definition are non-public companies. State regulators and legislators should reject proposals to apply investor-oriented protections to non-public companies, and instead allow the companies free to adopt provisions of Sarbanes-Oxley on a voluntary basis. If adherence to selected provisions of Sarbanes-Oxley is to be made mandatory, such a policy choice should be made solely by state legislatures and governors acting in accordance with constitutionally prescribed legislative procedures. (Published: 6/2/2005)
The Case for Underwriting Freedom: How Competitive Risk Analysis Promotes Fairness and Efficiency in Property/Casualty Insurance Markets
The policy debate over insurance price regulation tends to focus on state-administered "rating laws" that require insurers to seek the approval of state insurance departments whenever they wish to raise or lower premiums. A new National Association of Mutual Insurance Companies (NAMIC) Public Policy Paper explains that price regulation also takes a less direct form: state-imposed underwriting restrictions that curtail the ability of insurers to accurately assess and classify risk. (Published: 9/22/2004)
The Legal Theory of Disparate Impact Does Not Apply to the Regulation of Credit-Based Insurance Scoring
Attempts to apply a “disparate impact” legal standard to the use of credit-based insurance scores by insurers ignore case law, federal authorization of the practice, state laws that protect consumers from unfair discrimination and the benefits consumers derive from its use. The Legal Theory of Disparate Impact Does Not Apply to the Regulation of Credit-Based Insurance Scoring offers a critical analysis of current efforts to extend the disparate impact legal theory to the use of credit-based insurance scoring, exposing the theory’s inherent flaws and highlights the special difficulties that arise when the theory is applied to situations other than employment discrimination litigation. (Published: 7/7/2004)
The Damaging Effect of Regulation of Insurance by the Courts
The notion that people should be able to rely on the law is so fundamental that it should not have to be defended. Yet, tort litigation over the last decade has begun to erode this obvious truth. When a court steps outside its traditional role of resolving individual disputes, and places itself in the shoes of legislators or regulators, our ability to rely on the letter of the law is shaken. This is particularly true of the insurance industry because it is so heavily regulated. If we cannot presume that a practice authorized by a legislature or approved by a regulator is legal, then there are grave implications for the rule of law. However, the problem is not only legal. The ill effects of “regulation through litigation” can damage entire markets, affecting everyone - including consumers. (Published: 8/12/2003)
Regulation of Property/Casualty Insurance: The Road to Reform (Updated: October 2006)
NAMIC supports a reformed system of state property/casualty insurance regulation as the optimum regulatory structure. “A reformed system of state insurance regulation is superior to an unproven new system of federal regulation crafted in a difficult political environment,” stated David Anderson, NAMIC chairman and secretary/treasurer of Farm Mutual Insurance Co. of Lincoln County, Canton, S.D. “The road to reform runs through state capitals, not Washington, D.C.” (Published: 4/12/2002)
Market Conduct Regulation for a Competitive Environment
In the spring of 2000, the National Association of Mutual Insurance Companies (NAMIC) released a report which noted that a critical mass of activity is pushing policymakers in the direction of creating more uniform insurance regulatory procedures and greater consistency of state standards. (Published: 3/14/2001)
Accepting The Challenge: Redefining State Regulation Now
The National Association of Mutual Insurance Companies (NAMIC) favors the enactment of more uniform insurance regulatory standards by every state as the last, best hope for maintaining and improving the existing system of sovereign state insurance regulation. The threat to state regulation is so significant today that an unprecedented partnership of industry leaders, regulators and state policymakers is needed to put the necessary reforms in place. (Published: 4/18/2000)
Should the Community Reinvestment Act Apply to Insurance Companies?
This paper, which looks at the Community Reinvestment Act's (CRA) application to financial services sectors beyond banking, examines the question of whether new social investment obligations on the property/casualty insurance industry represent good public policy. Developed by a special task force of member companies and approved by NAMIC's board of directors, the paper includes a bold evaluation of the social, political and economic environment in which the insurance industry operates. (Published: 8/31/1999)
Focus On The Future Options For The Mutual Insurance Company
The environment in which mutual insurance companies must compete for policyholders, for revenue, and for capital is rapidly changing. To meet the challenges of the changing economic climate, mutual insurance companies in the United States, Canada and abroad have moved to restructure, recapitalize and adapt to their changed competitive circumstances. (Published: 1/6/1999)
A Statutory Self-Evaluative Privilege Benefits Consumers and the Insurance Marketplace (Published: 3/31/2015)
Insurance Implications of Ride-Sharing Services Offered by Transportation Network Companies (Published: 1/20/2015)
Misconceptions Motivate Bills to Mandate Liability Insurance for Gun Owners (Published: 5/14/2014)
No-Fault Insurance at 40: The Experience in Florida (Published: 11/2011)
Third-Party Litigation Funding: Tipping the Scales of Justice for Profit (Published: 5/2011)
Credit-Based Insurance Scoring: Separating Facts from Fallacies (Published: 2/22/2010)
Texting While Driving: States Move Aggressively to Enact Laws (Published: 9/10/2009)
Changing the Terms of the Regulatory Modernization Conversation: The New York Initiative (Published: 8/21/2006)
Ominous Trend: Growth of Municipal Accident Response Fees (Published: 4/13/2006)
Managing Terrorism Risk Requires Federal Financial Role and Broad Industry Participation (Published: 3/29/2006)
Compulsory ‘All-Perils’ Coverage Would Worsen Disaster Insurance Problems (Published: 1/31/2006)
Regulating Event Data Recorders: How Should Insurers React to New State Laws? (Published: 7/22/2005)
Kansas and Texas Enact Self-Audit Privilege (Published: 7/21/2005)
Security Breach Notification Laws: What Threats Do They Pose for Insurers? (Published: 7/7/2005)
Public Policy Briefing Paper on Climate Risk Disclosure Published by Washington Legal Foundation (Published by the Washington Legal Foundation, 5/12/2009)
Safeco v. Burr: How Does Ruling Reflect On Federal Role In Insurance? (Published by the Washington Legal Foundation, 8/24/2007)
Court’s Ruling Applying Credit Act to Insurers Legally Unsupportable (Published by the Washington Legal Foundation, 1/27/2006)
“Disparate Impact” Theory Provides No Support for Banning Credit Scoring in Insurance (Published by the Washington Legal Foundation, 4/8/2005)
Regulation and the Role of the Courts: Drawing a Line in a Sandstorm (Published by the Washington Legal Foundation, 6/25/2004)
Self-Evaluative Privilege Would Benefit Insurers and Their Customers (Published by the Washington Legal Foundation, 2/20/2004)
Defining Consumer Privacy: An Essential Precursor to New Regulations (Published by the Washington Legal Foundation, 4/11/2003)
Federalizing Insurance Regulation: A Treacherous Road to Reform (Published by the Washington Legal Foundation, 4/4/2003)
Consumers and Markets Suffer When Lawyers Regulate Insurance (Published by the Washington Legal Foundation, 10/18/2002)
Regulators or Juries: Who Can Best Protect Insurance Consumers? (Published by the Washington Legal Foundation, 8/23/2002)
Revisiting the Lingering Myths About Proposition 103: A Follow-Up Report (Published: 9/21/2004)
Analysis of the Consumer Federation of America Report; “Why Not The Best?” (Published: 12/1/2001)