Category: Current Issues

Louisiana Now Twelfth State to Amend Large Deductible Liquidation Act

Barbara Cox Leave a comment

On June 4 Louisiana adopted legislation to define how large deductible policies are handled in an insurance liquidation. The new law tracks closely to model language adopted by NCIGF and reflects the NCIGF position that deductible collections and other recoveries are to be remitted at 100% to the guaranty funds to the extent of their claim payments.

In the context of this legislation “large deductible” policies are:

  • Workers compensation policies in which the insurer agrees to pay the claims from dollar one.
  • However, through policy endorsement, the policyholder is obligated to reimburse the insurance company up to a certain specified amount – usually upwards of $100,000. (Sometimes through special arrangement with the insurance company the policyholder pays the deductible amount in the first instance – however the insurance company always has the ultimate responsibility to pay the claim.)
  • These mechanisms allow the policyholder to save on premium and at the same time protect the injured worker.
  • Any collection issues are addressed between the policyholder and the insurance company, but the worker gets needed benefits on a timely basis. Typically, the policyholder obligation to repay is secured by collateral furnished by that policyholder.

Confusion often ensues if the insurance company goes into liquidation and an insurance guaranty fund assumes the obligations of the insolvent insurer for workers compensation cases. Statutes such as the new Louisiana law settle various issues such as 1) who is responsible for collection of the large deductible recoveries, 2) how collateral put in place to secure these obligations should be administered post-liquidation, and 3) does the recovery become a general asset of the now insolvent estate or is it remitted to the guaranty fund paying the claim to the extent of that claim payment?

According to Roger Schmelzer, NCIGF President and CEO, “these issues are important to the guaranty funds for several reasons:  1)  Any confusion about the status of the various parties, such as the policyholder, the claimant, the receiver and the guaranty fund, can result in collection delays and litigation – both of which diminish available funds to reimburse the deductibles; 2) guaranty funds are a limited safety net – ultimately the cost of the guaranty fund payments is passed on to the public by various recoupment methods – having the structure in place to reimburse guaranty funds quickly on deductible payments reduces the cost to the public, and, importantly, bolsters the ability of the guaranty funds to provide seamless protection to injured workers.”

The new Louisiana law addresses all these issues and will do much to eliminate confusion and delay in future Louisiana insurance insolvencies. It’s essential elements are:

  • It calls for the receiver to assume collection efforts.
  • The receiver administers the collateral, draws down on the collateral should the policyholder fail to pay within a certain time frame, and eventually returns any excess collateral to the policyholder.
  • Guaranty funds receive reimbursement in full for their claim payments out of the deductible collections or collateral draw downs. (More information on this rather complex statutory scheme, and other similar laws, can be obtained by review of the new law available https://www.ncigf.org/industry/public-policy-and-legislation/.)

The other states that have adopted similar statutory changes are California, Pennsylvania, Illinois, Indiana, Michigan, Texas, New Jersey, Utah, Florida, Missouri, and West Virginia. Most follow some version of the template of the NCIGF model which has been revised over the years to reflect experience in dealing with these products in an insolvency context. The first state to enact the bill was Pennsylvania during the aftermath of the Reliance insolvency. Reliance was liquidated in 2001 and the legislation was added in 2004.

Special appreciation to John Wells, Executive Director of the Louisiana fund. John was instrumental in vetting this bill with state policymakers. 

NCIGF Leaders Address Global Resolution Experts in Taiwan

Robin Webb Leave a comment

NCIGF Vice Chair Chad Anderson (WGFS) and NCIGF CEO Roger Schmelzer recently returned from the Asian International Forum of Insurance Guarantee Schemes (IFIGS) meeting held in Taipei, Taiwan. Both spoke to a roomful of 150 Public officials and academics from throughout Asia about the value of insurance guaranty funds.

Chad Anderson presents to the group.

Anderson delivered a robust briefing on how the U.S. property and casualty safety net works and the system’s place in state-based insurance regulation. It was an important presentation because most of the audience was not familiar with consumer protection for casualty products. Nearly all the topics addressed in the two-day meeting involved life mechanisms with an emphasis on avoiding failure altogether and efforts to assist regulators in achieving that end.

Delivering the keynote speech as chairman of IFIGS, Schmelzer outlined common objectives for all nations with policyholder protection laws; early involvement, prioritizing insurance customers and making sure regulators had a full and accurate understanding of how guaranty programs work, concluding by saying that meeting these elements will help to stabilize economies around the world.

Schmelzer pointed to deliberations anticipated later this year by international regulators (including representatives from the United States) on the ideal future state of guaranty systems worldwide. He cited these talks as a critical opportunity to help regulators generate a comprehensive body of knowledge and realistic expectations of insurance safety nets and their missions. Schmelzer also asserted that it was equally important to create an understanding that there is no single best way to protect consumers.

Roger Schmelzer gives his keynote address.

Insurance Business Transfer Model Bill Takes Center Stage at NCOIL

Roger Schmelzer Leave a comment

The National Conference of Insurance Legislators (NCOIL) met in Nashville and spent a good bit of time talking about the very hot topic Insurance Business Transfers (IBT). For many, this was the main event from the meeting. NCOIL is considering a Model IBT Law based on the Oklahoma IBT statute passed in 2018.  Here are highlights from the NCOIL discussion:

  • Beth Dwyer (RI) provided background on corporate division and IBT statutes passed to date and an overview of the NAIC Restructuring Mechanisms Working Group’s charges. She explained that working group will develop a white paper that will provide an overview of IBT/corporate division statutes and an explanation of the perceived need for these statutes. She noted that the working group is looking at consumer protections and that a subgroup has been developed to look at the financial standards used in reviewing these transactions. She explained that guaranty fund/association issues are relevant where the statute involves personal lines.
  • Buddy Combs (OK), who was instrumental in passing the Oklahoma IBT statute, provided an update on a current bill designed to help implement the IBT statute. Among other things, the bill (SB 885) tries to address two issues that have come up as Oklahoma thinks about implementing its statute – confidentiality and guaranty fund application. Combs noted that Oklahoma is not rushing to pass this bill and wants to make sure they get it right.
  • Robert Redpath (Enstar) gave a presentation on the benefits of IBT statutes – using UK Part VII transfers as an example of a transfer framework with effective process and established history of success. He noted that this allows companies to efficiently use capital and divest non-core business and redeploy capital.  He advocated for a model to ensure consistency between states and avoid potential disputes over conflict with other state’s laws.
  • Doug Wheeler (NY Life) argued that several companies are concerned about these laws because many lack necessary regulatory controls. He explained that this is an extraordinary process and suggested that the framework fundamentally changes the insurance promise without policyholder consent. He argued that division statutes have the potential to create a good company/bad company situation, which may increase the likelihood of insolvencies. He also noted that mono-line companies with long-tail business can create insolvency risks. He urged careful consideration of the proposed models, noting that additional insolvencies could erode trust in the state system. Finally, he encouraged NCOIL to reach out to Peter Gallanis from NOLHGA to get the benefit of his expertise in this area.  Here is the link to his presentation.
  • Karen Melchert (ACLI) noted that the ACLI is still developing its guidelines on these issues, and the core of the conversations to date center on policyholder protections, including the need for proper notice and process and ensuring appropriate guaranty association/fund coverage.
  • During the Q&A portion of the panel, NCOIL members had questions about how the independence of the independent experts is determined. The legislators and panelists agreed that any division or IBT involving long-term care (LTC) business should be carefully considered. Combs agreed and noted that not all lines of business will be treated the same under the Oklahoma; he explained that Oklahoma regulators are concerned about LTC failures and implied that any IBT transfer involving LTC business would be given heightened scrutiny.
  • Finally, a representative from the Reinsurance Association of America explained that the lack of policyholder consent in these laws may result in conflict with laws in other states that require policyholder consent when a policy is novated.
  • The Committee plans to continue discussion on this model at the Summer National Meeting in July.

NCIGF is paying close attention to all activity related to the IBT debate. I will be giving a brief presentation at the upcoming NCOIL meeting on the potential impact of IBT on policyholder protection. We will update you on that in due course.

NCIGF Reps Meet with Members of Congress

Roger Schmelzer Leave a comment

Recently, a number of NCIGF members, board members and staff took Capitol Hill by storm to do some updating on the state guaranty fund system. Meetings like these are critical, especially after an election year that saw a shift in power in the House of Representatives and the election of 100 new members of Congress, many of whom are without a background in financial services. Here are a few quick takes from the day:

  • 16 total meetings; 15 of which were with members of the Senate Banking and House Financial Services Committees.
  • Cross-section of senior members and freshman members, including:
    • Senate Banking Committee Chairman, Mike Crapo
    • Housing, Community Development, and Insurance Subcommittee Chairman, Lacy Clay
    • Housing, Community Development, and Insurance Ranking Member, Sean Duffy
    • 4 House Financial Services Committee freshmen
  • Overarching theme in the meetings was support for the state system.
  • Members and staff expressed appreciation for NCIGF’s engagement.

Many thanks to those who participated, along with John Blatt, Amy Clark and me (from NCIGF staff): Chad Anderson (WGFS), Charlie Breitstadt (Nationwide), Allan Patek (WI), Barbara Law (GFMS), Barry Miller (DE), Brad Roeber (CA) and Frank Knighton (GA). I feel confident we are off to a good start with this Congress. We’ve invested large amounts of resources, especially since the financial crisis, to assure federal lawmakers that the state-based safety net is prepared to protect consumers. Now is not the time to let up.

New Year, New Faces

Daniel Lewallen Leave a comment

We will see several new commissioners across the country in 2019.  Here is a high-level summary of the commissioner changes, followed by a listing of the NAIC committee leadership for 2019. 

New Commissioners:

Arizona: Arizona’s Keith Schraad appears to have received a full-blown appointment as Director of Insurance (he had been interim director).  Schraad has over 25 years of both private‐ and public‐sector experience in the areas of insurance, healthcare, technology and government.

California: Commissioner Ricardo Lara won a close race against a well-funded former commissioner. Commissioner Lara has noted that his priority is “protecting consumers, patients, hard-working families, seniors, and the most vulnerable communities in [California].”

Colorado: Michael Conway, who had been serving as Interim Commissioner, has been appointed Commissioner of Colorado. Conway has extensive regulator experience; he served as the Deputy Commissioner of Insurance for Consumer and Compliance Services prior to taking the Commissioner role.

Georgia: Former Department Chief of Staff Jim Beck narrowly defeated insurance industry veteran Janice Laws. Beck has already prioritized fighting insurance fraud against seniors and bringing stability to auto insurance rates during his time as Commissioner.

Kansas: State Senator Vicki Schmidt was elected Insurance Commissioner.  As a State Senator, Schmidt served as Chair of the Senate Public Health and Welfare Committee. With substantial experience as a pharmacist, coupled with her legislative leadership background, Commissioner-elect Schmidt will bring a unique perspective and expertise to the NAIC.

Michigan: Anita Fox, a lawyer with over 30 years of experience, has been appointed Director of the Department of Insurance and Financial Services. 

Minnesota: Governor Walz has nominated former state Senator Steve Kelley as Commissioner of the Department of Commerce. Kelley was most recently a Senior Fellow at the Humphrey School of Public Affairs, University of Minnesota.

New York: Governor Andrew Cuomo has formally nominated Linda Lacewell to be the new Superintendent of the New York DFS. Lacewell, a former prosecutor, currently serves as Cuomo’s Chief of Staff and has been with his office in various capacities since 2007. 

Oklahoma: Glen Mulready was elected as Commissioner of the Oklahoma Department.  Mulready has chaired Oklahoma’s House Insurance Committee and was active at the National Conference of Insurance Legislators. He also has industry experience as a producer, so he hits the ground running. Mulready has announced Tyler Laughlin, a senior staffer with former Commissioner Doak, as his Chief of Staff, helping to ensure continuity in the transition.

Wisconsin: Mark Afable, an American Family executive, has been appointed Insurance Commissioner. Afable has voiced a desire to tackle the availability and affordability of health insurance once his term begins.

In Connecticut and Illinois, commissioner seats remain open under new administrations as of mid-January.  The Nevada governor-elect’s transition has not made any announcements regarding future leadership of its department.

The NAIC has announced committee leadership for 2019:

Life Insurance and Annuities (A) Committee
Chair: Doug Ommen, Commissioner, Iowa Insurance Division
Vice Chair: Stephen C. Taylor, Commissioner, District of Columbia Department of Insurance, Securities and Banking

Health Insurance and Managed Care (B) Committee
Chair: Jessica Altman, Commissioner, Pennsylvania Insurance Department
Vice Chair: Lori K. Wing-Heier, Director, Alaska Department of Commerce, Community and Economic Development, Division of Insurance

Property and Casualty Insurance (C) Committee
Chair: Elizabeth Kelleher Dwyer, Superintendent, State of Rhode Island Department of Business Regulation, Division of Insurance
Vice Chair: Scott A. White, Commissioner, Virginia State Corporation Commission Bureau of Insurance

Market Regulation and Consumer Affairs (D) Committee
Chair: Chlora Lindley-Myers, Director, Missouri Department of Insurance, Financial Institutions and Professional Registration
Vice Chair: Allen W. Kerr, Commissioner, Arkansas Insurance Department

Financial Condition (E) Committee
Chair: David Altmaier, Commissioner, Florida Office of Insurance Regulation 
Vice Chair: Tom Glause, Commissioner, Wyoming Insurance Department

Financial Regulation Standards and Accreditation (F) Committee
Chair: Todd E. Kiser, Commissioner, Utah Insurance Department 
Vice Chair: Jillian Froment, Director, Ohio Department of Insurance

International Insurance Relations (G) Committee
Chair: Julie Mix McPeak, Commissioner, Tennessee Department of Commerce and Insurance
Vice Chair: Gary Anderson, Commissioner, Massachusetts Office of Consumer Affairs and Business Regulation Division of Insurance

NCIGF CEO ELECTED CHAIR OF GLOBAL POLICYHOLDER PROTECTION GROUP

Robin Webb Leave a comment

INDIANAPOLIS, IN, January 14, 2019 – Roger H. Schmelzer, president of the National Conference of Insurance Guaranty Funds (NCIGF), has been selected to serve as chairman of the International Forum of Insurance Guarantee Schemes (IFIGS). 

Schmelzer, along with Peter Gallanis, president of the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA), NCIGF’s life and health counterpart, together have represented the United States as members of IFIGS since 2012.

Schmelzer, who has led the NCIGF since 2006, will be joined on the IFIGS Management and Support Committees by representatives from Canada, Chinese Taipei, Germany, Greece, Korea, Kenya, Romania, Singapore, Spain, Thailand and the United Kingdom.  He has served as IFIGS secretary for the past year.

“Insurance customers, industry and the economy are best-served when the insurance promise is secured,” said Schmelzer upon his election. “I’m enthusiastic about working with our global partners to further advance that objective.”

IFIGS facilitates and promotes international cooperation between insurance guarantee schemes and other stakeholder organizations with an interest in policyholder protection. The IFIGS is made up of 25 full and associate members, 22 of which are Insurance Guarantee Schemes (IGS) from Africa, Asia, Europe and North America. There are more than 30 IGS worldwide.

IGS protect policyholders of insurance companies that fail. Many IGS provide expertise in stabilization or restructuring resolutions, and all IGS can provide expertise and some form of insurance protection and/or financial support to assist in the liquidation of an insolvent insurer.

An international platform will elevate the U.S. guaranty system’s value to domestic solvency regulators, according to Schmelzer. “This is timely because the NAIC is undertaking its own initiatives that could affect the U.S. system,” he said.  “The broader our expertise, the more impactful we can be on behalf of the state guaranty funds, the carriers who belong to the state associations and most importantly to individual policyholders and claimants.”

Schmelzer noted the efforts of the NCIGF and NOLHGA as part of IFIGS have already made a difference, citing recent changes to international regulatory drafts which underscore the primacy of policyholder protection, the importance of pre-insolvency cooperation, collaboration between the guaranty system and regulators as well as clearing up any misconceptions that a guaranty association could spread financial risk.

NCIGF and NOLHGA will host the IFIGS annual conference in late 2019.

NCIGF Sees Progress at NAIC on LD and Troubled Co Regulation

Roger Schmelzer Leave a comment

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!