NCIGF Sees Progress at NAIC on LD and Troubled Co Regulation

NCIGF closed out 2018 on a very high note.  Regulators adopted very positive recommendations governing large deductible insolvencies, including that states be encouraged to adopt statutes that grant the receiver the authority to collect deductible recoveries.  If no statute is in place receivers are encouraged to execute an agreement with the guaranty funds to enable this process.  The Working Group noted that two large deductible model statutes are available – the NAIC and the NCIGF versions. 

While the issue is not quite wrapped up (NCIGF will be involved in continued discussions regarding the ultimate ownership of the deductible asset and the drafting of specific language for the Receivers Handbook) this progress is attributable the hard work of a number of our members.

Likewise, financial regulators invited NCIGF and NOLHGA to comment on the NAIC Troubled Company Handbook.  Our comments were supportive (and included some fine-tuning based on member liquidation experience) because the proposed revisions to the Handbook would improve guidance to regulators on issues NCIGF members have found especially challenging:

  • early communication with guaranty funds and pre-liquidation planning,
  • regulator attention to the condition and availability of digital data in a troubled company,
  • info on service arrangements (TPAs and MGAs),
  • gathering information on the type and location of collateral, such as that intended to secure large deductible obligations  

Especially impressive is the attention given to the importance of digital data in contemporary insolvencies.  There now appears to be universal agreement that this is a very critical element to a successful liquidation process and key to the collaboration between guaranty funds and receivers.

To be successful, NCIGF served as the “trusted expert” and the definitive source of information on insurance insolvency and its consequences.   As a result, we have enjoyed great cooperation from regulators on these issues, both of which matter to on a daily basis to NCIGF members and the policyholders you serve.  We will build on these developments in the coming year!

NAIC Chief Endorses Web of Trust

I recently received a report from an international insurance regulatory meeting in which U.S. insurance commissioners were participating.  The urgency and assertiveness of our regulators hit me like a ton of bricks.

NAIC president, Eric Cioppa—the Maine director of insurance– opined that cybersecurity regulation cannot be prescriptive, but instead must be principles based because it is too hard for the supervisors to keep pace with industry.  First, cybersecurity engagement must come from the very top of the company.  A culture that prioritizes cybersecurity is critical due to the weakest link phenomenon.  Second, an insurer must focus on total preparedness for when a breach occurs.  Without engaging in table topping, a breach could be devastating to the company.  The supervisors are not looking to second guess a company’s program, but are trying to focus on broad cybersecurity themes.

As we continue to push forward in implementing the Web of Trust, it’s not for nothing to understand how U.S. regulators are approaching the same problems at an industry level and to recognize that it’s not all that different from the work we have been doing and are prepared to do more of.  Given that our members’ claims-paying function is an extension of the insurance industry, what regulators think on the topic should very much matter to us. 

In my view the reasoning transfers to NCIGF’s role in making certain that our members are at the most effective level of cyber security; f regulators can require carriers to “open their kimonos” as part of their consumer protection mission when a company is in business, we should be doing the same on security, also for the purpose of protecting policyholders and claimants. Our goals are even more narrow than the regulator’s.

Beyond the cybersecurity piece, the report should provide a flavor for the scope of discussions at the IAIS and the active role U.S. regulators are playing in it.  This is a global version of the NAIC (and as Keith Bell reminds us, the NAIC actually created the IAIS).  I point this out because while some of our colleagues continue to digest the “international” aspect of insurance regulation and its application to the U.S., this report gives a tiny peek into its tangibility, importance and durability.