This past October, the National Association of Insurance Commissioners (NAIC) convened its Fall National Meeting in a hotel just off the freeway, in Kissimmee, Florida, for another in a 139-year-long series of regulatory “smokers.” By general consensus a good time was had by all. Here are a few highlights from the meeting and topics discussed there.

Honchos

The state regulators’ association elected its 2011 officers:

• President: Iowa Insurance Commissioner Susan E. Voss

• President-elect: Florida Insurance Commissioner Kevin M. McCarty

• Vice President: Oklahoma Insurance Commissioner Kim Holland

• Secretary-Treasurer: Louisiana Insurance Commissioner James J. Donelon

Susan E. Voss became Iowa Insurance Commissioner in 2005, when then-current NAIC Executive Vice President Terri Vaughan left the post. Prior to her appointment as commissioner, Voss served as Iowa’s first deputy commissioner and is described as a cheerleader for insurers. She has held a number of different positions with state government, including assistant attorney general for the Iowa Department of Transportation, legal counsel to the state ombudsman, counsel to the Iowa legislature in the area of taxation and economic development, and tax policy attorney for the Iowa Department of Revenue and Finance. She is a graduate of Simpson College in Indianola, Iowa, and earned a J.D. from Gonzaga University in Spokane, Washington.

Kevin M. McCarty is the commissioner of the Florida Office of Insurance Regulation. He became Florida’s first appointed insurance commissioner in January 2003. He is responsible for Florida’s insurance market, including oversight of company solvency, policy forms and rates, market investigations and new insurance business. McCarty began his career in public service in 1988, becoming an expert in workers compensation issues with the Florida Department of Labor and Employment Security. McCarty earned a bachelor’s degree in political science and a J.D. from the University of Florida.

Kim Holland became the first woman to be elected Oklahoma Insurance Commissioner in 2006, following a series of ethics scandals. She describes herself as a businesswoman and active civic volunteer before becoming insurance commissioner.  She was viewed as a close ally of former NAIC Executive Vice President Cathy Weatherford, who left the NAIC under a cloud of suspicion. Holland is a former board member of the Oklahoma Health Care Authority and the Oklahoma State Employees Benefits Council. Holland is the recipient of the statewide 2007 Public Service Champion of Health, which recognizes her contributions to reducing the number of uninsured in Oklahoma.

James J. Donelon was appointed Louisiana Insurance Commissioner in February 2006 and has been re-elected twice to the position. A retired state judge advocate for the Louisiana Army National Guard, Donelon served the department of insurance as chief deputy commissioner and executive. He is also a former parish council chairman and state representative, where he chaired the Committee on Insurance. Donelon is a graduate of the University of New Orleans and Loyola School of Law.

The newly elected officers will as­sume their duties on January 1, 2011.

Market conduct

During the national meeting, the NAIC announced that 34 jurisdictions have signed a Terms of Use Agreement to collect Market Conduct Annual Statement (MCAS) data. Through the agreement, states will use a new, automated collection tool to collect MCAS data, which will be centrally stored at the NAIC. The association believes that its vague legal standing will make it difficult for injured parties to seek redress through the discovery of NAIC-housed data.

“This is a significant milestone for the MCAS project,” said John M. Huff, chair of the NAIC Market Information Systems Task Force and Missouri insurance director. “MCAS now has a national scope which greatly enhances its usefulness for market analysis. When coupled with the centralization of the data at the NAIC, MCAS will be a very effective resource for state regulators—and its effectiveness will only increase as more data elements and lines of business are added in the coming years.”

Forty-seven jurisdictions initially committed to the collection of MCAS, and Huff stated he fully expects the remaining 13 will have signed the Terms of Use Agreement by December 1, 2010.

The MCAS project began in 2002 and gradually grew from eight participating states to 29. In 2008, the Market Regulation and Consumer Affairs Committee unveiled its long-range plans for the centralization of MCAS data, which included the participation of all states and the District of Columbia. In 2009, the NAIC Executive Committee approved the creation of the new MCAS collection tool.

“The new, automated collection tool provides a more efficient and cost-effective method for both companies and states,” said Roger A. Sevigny, chair of the NAIC Market Regulation and Consumer Affairs Committee and New Hampshire insurance commissioner. “With the announcement of the additional states, we are very close to successfully realizing the ultimate goal of using MCAS for uniform, national analysis of market performance.”

Multi-state settlement

In a related area, New York State Insurance Superintendent James J. Wrynn announced that Allstate has agreed to pay New York $1.2 million as part of a $10 million regulatory settlement. The agreement follows an 18-month targeted NAIC multi-state market conduct examination of Allstate’s claims handling practices.

“Allstate has agreed to implement procedures to ensure transparency and fairness for consumers who have bodily injury claims,” Wrynn said. “The new processes ensure that claims will be handled consistently in different regions of the country, and consumers will have the right to get the information they need in order to understand how Allstate evaluates their claims and make sure they are fairly treated.”

The NAIC examination, for which New York was one of the lead states, focused primarily on Allstate’s use of claims handling software, particularly the software program, Colossus.

Allstate used Colossus to guide its settlement offers for bodily injury claims after automobile accidents. The examination found inconsistencies in Allstate’s management and oversight of the Colossus software program. In particular, the examination found that Allstate had failed to modify or “tune” the software in a uniform and consistent manner across its claims handling regions.

Under the settlement agreement, Allstate agreed to make a number of changes to its claims handling process, including:

• Providing notice to claimants that the Colossus software program may be used in the adjustment of their bodily injury claim

• Enhancing its management oversight of Colossus to ensure that it adheres to established criteria and a uniform methodology in selecting claims to be used to “tune” or modify the software to reflect recently settled claims

• Strengthening its internal auditing of Colossus and bodily injury claims handling to ensure adherence to written guidelines and procedures

• Consolidating its bodily injury claims handling practices into a single claims handling manual

• Not establishing a policy or rule requiring claims adjusters to settle bodily injury claims solely on the value recommended by Colossus and not providing incentives for claims adjusters to settle claims at or near the value recommended by Colossus.

“It is important to note that we found no systemic underpayment of bodily injury claims,” Wrynn said. “While the issues addressed were serious, Allstate cooperated fully with our examination and is working to correct these deficiencies. Here in New York, we will continue to review the use of claims handling software by property/casualty companies.

“This settlement shows how state insurance regulators work together to protect consumers,” Wrynn said. “The four lead states—Florida, Illinois, Iowa and New York—worked cooperatively to conduct this examination and will keep working with the other 41 states that have signed on to this agreement to ensure it is fully implemented and consumers are properly protected.”

According to the New York Insur­ance Department, Allstate’s payment will be used to establish a regulatory fund. The fund will be used by the 45 signatory states, to the extent consistent with applicable state laws, to develop and train examiners to review and monitor the property/casualty industry’s use of software technology in adjusting claims.

Medical losses

During a joint session, the NAIC Executive and Plenary Committees voted to adopt a model regulation containing the definitions and methodologies for calculating medical loss ratios as required by the Patient Protection and Affordable Care Act (PPACA). Had the NAIC failed to act, the Secretary of Health and Human Services (HHS) was empowered to write rules without regard for the parochial interests contained in the NAIC recommendations.

The PPACA, signed into law on March 23, 2010, requires that beginning in 2011, insurance companies meet new medical loss ratio requirements designed to ensure that premium dollars go to health care. The law requires that the NAIC provide recommendations for the definitions and calculations of these ratios to HHS by December 31, 2010.

“I commend the work of our regulators and staff as we considered a number of very challenging issues as it moved through the committee process. The committee model regulation on MLR passed with only technical amendments, which is a testament to our inclusive and transparent process,” said Jane L. Cline, 2010 NAIC president and West Virginia insurance commissioner. “It is with a great deal of pride we present these recommendations to the secretary.”

In coordination with the anticipated completion of the model regulation, the NAIC sent a letter to HHS Secretary Kathleen Sebelius addressing related issues raised during this summer’s deliberations that the regulators believed were outside the purview of the NAIC’s responsibilities. Issues raised in the letter included: insurer solvency, the flexibility for states to phase in recommendations to reduce market disruptions, the application on expatriate policies, and the methods of paying related rebates to consumers.

Through the enactment of PPACA, Congress and the administration acknowledged the important consumer protections maintained by state insurance regulators. The law tasks the NAIC with a number of additional provisions to consider, including rate review and consumer information. The Health Insurance and Managed Care Exchanges subgroup has already begun work on their recommendations to HHS. In addition, the NAIC will create guidelines and recommendations to facilitate the implementation of health exchanges, due to be operational in the states by January 2014.

Tax dodge

The Executive Committee of the NAIC voted to authorize the association’s management to proceed with lease negotiations to move the NAIC’s central office to Town Pavilion in downtown Kansas City, Missouri. The NAIC’s current lease with Crown Center expires in January 2012.

“Our extensive review process started in late 2008 with an eye toward finding the best space in metropolitan Kansas City for the association, NAIC affiliates and all of our employees. We are pleased with the results and look forward to finalizing the terms and planning the move,” said Andrew J. Beal, NAIC chief operating officer and chief legal officer.

The review process included an architectural survey to examine current and future space needs, along with an evaluation of a variety of incentives offered by the states of Kansas and Missouri, as well as by the city of Kansas City, Missouri.

“We looked at this decision from every possible angle, including financial terms offered by the properties, NAIC employee surveys, proximity of hotels and restaurants and many other factors,” said Beal. “We sincerely appreciate the efforts by the city and both Kansas and Missouri. This process reaffirms the NAIC’s commitment to the Kansas City area for the long term.”

Perhaps the most persuasive angle that the NAIC perused concerned the pressure it put on the Kansas City Missouri City Council to kick back half of the earnings tax owed by the NAIC to the city.  Once again, the NAIC does not pay “no stinking” taxes. The NAIC is special.

“The association’s officers and the members rely on our NAIC staff for assistance in our collective efforts and are impressed by the due diligence conducted by the NAIC team to make this prudent business decision,” said Commissioner Jane L. Cline.

The NAIC’s central office has more than 460 employees. The association also has offices in Washington, D.C., and New York City. Since the early 1980s, the NAIC and its unincorporated, predecessor organization have avoided paying sales tax on information sold out of its New York Office by presenting an IRS Opinion Letter that classifies the organization as tax exempt under section 501(c)(3) of the Internal Revenue Code.  At other times, the NAIC claims to be an instrument of the states.

The author

Kevin P. Hennosy is an insurance writer who has written extensively on the history of insurance regulation.