Filed Under:Your Practice, Regulatory

NAIC wants role on international reg agency

Adam Hamm, NAIC president and North Dakota Insurance Commissioner (AP Photo/Dale Wetzel)
Adam Hamm, NAIC president and North Dakota Insurance Commissioner (AP Photo/Dale Wetzel)

The National Association of Insurance Commissioners wants to have a voice in the Financial Stability Board, an international group which seeks to promote creation of uniform regulatory oversight policies for financial firms.

Currently, only the Federal Reserve Board, the Securities and Exchange Commission and the Treasury Department represent the U.S. with the FSB.

The NAIC’s views were voiced in a letter to those agencies signed by Adam Hamm, NAIC president and North Dakota Insurance Commissioner.

Hamm said in the letter that because the FSB is increasingly driving international standard-setting beyond its primary focus on financial stability, its work has the potential to impact the U.S. insurance sector.

See also: NAIC, FSA of Japan form alliance

Hamm said the NAIC is seeking “to strengthen U.S. participation” in the FSB by “directly providing our insurance expertise and regulatory perspective to these important discussions that will have import for the companies we regulate.” The letter was addressed to Daniel K. Tarullo, Governor of the Federal Reserve Board; Mary Jo White, Chair of the Securities and Exchange Commission; and Marisa Lago, Assistant Secretary, Department of the Treasury.

Hamm said that to illustrate the far-reaching implications of FSB discussions as they relate to regulated companies, he wanted to point out that the U.S. insurance market represents one-third of the total insurance market worldwide.

“If FSB proposals are to be relevant and considered for integration into the U.S. regulatory regime where appropriate, then U.S. participation in FSB discussions should reflect our unique regulatory structure and not be hampered by arbitrary limitations and seat assignments that place the U.S. at a disadvantage relative to more consolidated regulatory regimes,” Hamm said.

The letter also pointed to examples of FSB working groups that directly impact insurance regulation, such as the Standing Committee on Supervisory and Regulatory Cooperation, which deals with systemic risk and group supervision issues, and the Insurance Cross Border Crisis Management Group under the Resolution Steering Group.

The FSB has been established to coordinate the work of national financial authorities and international standard setting bodies and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies.

See also: NAIC’s new leader welcomes major issues, won't look back

The FSB is now headed by Mark Carney, Governor of the Bank of England and is headquartered in Basle, Switzerland, at the offices of the Bank for International Settlements.

Besides central bankers and government agencies, its members include money center financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts.

The National Association of Insurance Commissioners and the National Conference of Insurance Legislators are independently moving to develop uniform guidance for insurance companies caught up in the aggressive efforts by state insurance agencies and treasurers to recoup funds from unclaimed death benefits in life insurance policies.

The NCOIL effort is aimed at further updating a model law it crafted in 2011 and has now been adopted by nine states and is being debated by legislatures in nine other states, according to a Legal Alert by Sutherland, Asbill & Brennan.

“The NCOIL Unclaimed Property Task Force is tasked with improving the NCOIL model law to make it more consistent and uniform,” said Mary-Jane Wilson-Bilik, a Sutherland partner who has advised a number of insurers caught up in the long-running state regulatory and state treasurer unclaimed  property enforcement actions.

See also: International group blasts U.S. insurer regs

“But it remains to be seen whether NCOIL and the NAIC can work together to develop Social Security Death Master File (DMF) standards that are workable and responsive to industry concerns,” she said.

But the parallel actions offer hope that regulators and state treasurers are moving away from the enforcement action phase of dealing with the issue to one long-sought by insurance companies and life insurance trade groups, providing guidance aimed at ensuring what the industry calls “fair and uniform” settlement practices. The industry wants a model law, regulation or guideline dealing with use of the DMF.

The industry has been dealing with the issue since 2008, when California state Controller John Chiang hired an outside software vendor, Verus Financial, to audit John Hancock. Chiang and Verus believed that John Hancock was using the Social Security Death Master File primarily to determine whether annuitants were still alive, and only spasmodically using it to determine whether a life insurance policyholder was alive. When the Verus audit found that the DMF was only being used “asymmetrically,” Chiang commenced an enforcement action against John Hancock, and later expanded it to cover other large insurers. In 2011, other state regulators and treasurers got involved in the probe, which continues to this day. It is believed that 44 states are involved.

According to lawyers at Carlton Fields Jorden Burt, the NAIC (A) Committee Thursday appointed an Unclaimed Life Insurance Benefits (A) Working Group charged with "undertaking a study to determine if recommendations should be made to address unclaimed death benefits." Tennessee Insurance Commissioner Julie McPeak will chair the Working Group.

According to lawyers from Carlton Fields Jordan Burt who tuned in to the conference call, the Working Group will hold an information-gathering session of interested parties during the NAIC spring meeting March 31.

The Working Group will use this information in its discussions about next steps as it proceeds with the study. McPeak wants commentary and testimony from regulators, the industry and interested parties seeking to speak at the session to apply to the NAIC by March 19. Any written testimony or other information should be submitted to the NAIC by March 26, McPeak said during the conference call.

The NCOIL group, led by the co-Chair George Keiser, North Dakota,  outlined at the meeting the top structural issues that he believes the Task Force needs to address in order to create a more uniform and effective Model Act, according to lawyers at Sutherland Asbill & Brennan.

The Sutherland lawyers said one of the key issues is whether a new Model Act should be applied retrospectively versus prospectively. Another issue is the fact that the industry and regulators are seeking continued access to the DMF while the U.S. Commerce Dept. crafts a rule establishing a certification process to companies seeking access to the DMF. The Bipartisan Budget Act of 2013 establishes such a certification process effective March 26.

Because the Model Act requires that insurers run searches against the DMF, the Bipartisan Budget Act may render insurers unable to fully comply with the Model Act where it has been implemented by state law, those attending the NCOIL session were told. Other issues the Task Force needs to address include integration of the Model Act with the NAIC Unfair Trade Practices Act, which has been adopted in most states; and the scope of the Model Act’s DMF search requirements; the proper scope of exclusions and exemptions in the Model Act. Sutherland lawyers said one issue of concern to the industry is the use of contingency fee auditors in unclaimed property examinations. There are now three companies vying with the states for this business, and they charge the insurers different fees based on whether the audit is being conducted by state insurance regulators or state treasurers. They are Verus, a unit of Xerox and Kelmar Co.

Sutherland lawyers said another issue raised at the Savannah meeting was the cost burden of the Model Act on small and mid-sized companies. One of the issued raised, the Sutherland lawyers said, is whether the Model Act should allow the insurance regulator to exercise discretion in order to limit or phase-in compliance with the law for small companies that may be financially burdened by the law.

The current model law was approved by NCOIL in 2011, and has been enacted in nine states, Sutherland said in its alert. They are Alabama, Kentucky, Maryland, Montana, North Dakota, New Mexico, Nevada, New York and Vermont. According to the Sutherland lawyers, it is pending in nine others: Georgia, Indiana, Iowa, Louisiana, Massachusetts, Oklahoma, Pennsylvania, Rhode Island and Tennessee.

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