Launching 2019 NAIC Priorities

NAIC President and Maine Insurance Superintendent Eric A. Cioppa's prepared remarks for Opening Session.

Welcome to "the happiest place on earth," a place brimming with amazing places to see, including NASA’s Kennedy Space Center in Cape Canaveral, where I’m told they will have a Space X Falcon Heavy launch next week.

This year is the 50th anniversary of the Apollo eleven spaceflight. Some of you may remember watching grainy black and white pictures of the moonscape and hearing the crackly voice of Neil Armstrong as he took his first step on the moon.

Although the production values were not impressive, the accomplishment was amazing. No matter where you were in the world, you stopped, and you stared at a footprint. A “small step for man, but giant leap for mankind.”

If you missed it live on television—and I’m guessing many of you did—you have no doubt seen a movie or read about it in history books.

Neil Armstrong, Buzz Aldrin and Michael Collins all made history, thanks to thousands of people who helped make it happen—including Mary Jackson, Katherine Johnson and Dorothy Vaughan.

These now famous 'hidden figures', along with the countless engineers, assembly line workers, accountants, and cleaning crew, were critical to the success of the Apollo mission. Not to mention the government officials who authorized the program and of course the taxpayers who paid for it.

There is something about the notion of space travel that is transformative. It's not incremental. It's not subtle. There is no half-way.

And I lay this out as a challenge and a promise to all of you. To successfully reach our destinations, it will take working together as a team, with each one of us contributing our best, to make it a reality.

State Ahead

While we are not landing on the moon, we are on an ambitious course laid out in our strategic plan—our own moon-shot of sorts—State Ahead. The NAIC has a lot of new members who weren't here for the drafting of this plan, so let me speak directly to you for a moment.     

Our three-year plan—State Ahead—was the collective effort of all of the NAIC membership, in conjunction with senior NAIC staff. It is a living, breathing document—one that is subject to your input now—and throughout the process of implementation. I ask you not only to read the document, but also to engage with each other as we execute the strategic plan.          

Your varied backgrounds, insights and energy will be critical to our success. You will also be instrumental when we begin designing our next step forward—our version of going to the moon.

At its core, the plan shows us the way to build on the NAIC's strengths as a nexus for innovation and a resource for regulators to execute our responsibilities.

With the State Ahead plan, we are enhancing our software and technology services to create a more flexible system that will not only enable—but encourage—innovation that provides new insights for regulators.

Our aim is to arm our members with more efficient state-of-the-art tools, top-tier talent, and the tailored resources we need to make informed decisions in this data-driven world.

Along these lines, I hope you will join me at the Future of Blockchain in Insurance event on Monday. Such an important topic highlights the need to better understand the emerging technologies that intersect with insurance regulation.

2019 Priorities

For 2019, the NAIC membership has decided to focus on eight issues central to our mission of protecting policyholders and advancing the state-based policy agenda, which is the heart of State Ahead.

Long-Term Care Insurance

It should come as no surprise that one of those priorities is long-term care insurance. A basic concern of the NAIC is ensuring policyholders receive the benefit of their policies when they need it. Long-term care insurance is no different.

The market dynamics of longer lifespans, increasing cost of care, and underpriced legacy policies have been an ongoing challenge to market stability.

For consumers, we are in the process of finishing updates to our shopper's guide as a resource for state departments and the general public.

I am advocating for the formation of an executive-level task force to focus on rate review coordination and rate review consistency. We are also finalizing actuarial reserve reviews which will provide us clarity on the solvency position of these insurers.

The NAIC has put forward several federal policy changes, many related to the tax code, which would help address availability and affordability of long-term care insurance. While working with a divided Washington is an uphill climb, it is incumbent on us to explore all workable solutions.

Annuity Suitability

Another area we are looking for solutions is ensuring that annuity products are sold appropriately. To accomplish this, we are amending the Suitability in Annuity Transactions Model Regulation. These changes will promote a higher standard of care and greater uniformity across the country.

Because variable annuities are regulated by both state insurance and federal securities regulators, harmonizing our work makes sense for consumers and for the industry. The NAIC is engaged with our counterparts in Washington, working together to protect consumers.

However, bear in mind, a few states are already acting. The Department of Labor could reengage on the issue. A new Congress could weigh in. Given these dynamics, we are all very cognizant that this is a work in progress and could further evolve.

But the end goal has not changed. We are committed to a strong, effective, and credible model supported by our members. One that can be widely implemented.

Health Insurance

Our next priority is health insurance market stability. Again, we must work with our federal partners to improve health insurance markets in our states. The NAIC continues to provide non-partisan advice to Congress and the Administration and to identify bipartisan reforms that will stabilize the health insurance market.   

Again, this is an opportunity for states to lead and to come up with approaches that will work.

Climate Change

As weather events become more destructive and costly, we as regulators must continue to work with our counterparts to address these new realities.

From a global perspective, insurance companies are increasing their climate-related risk engagement by creating incentives for resiliency. Still more needs to be done. Our collective goal should be to ensure that disasters such as flooding in the heartland have the best possible outcomes.

We must face these new realities to ensure that our markets work and that companies provide the protections and benefits that they promise their customers.

Our hearts go out to those affected by the recent disasters, and the NAIC stands ready to assist any state that needs additional resources.

We continue to press for a long-term reauthorization of the National Flood Insurance Program and a more robust private market for flood insurance. We also are committed to educating consumers about the risks associated with natural disasters and the important role insurance plays in recovering from them.

This is a generational challenge with huge implications not just for us, but for our children and for their children. The NAIC is committed to being part of the solution.

Cyber

Cybersecurity is another important topic for the insurance sector. Insurers and insurance producers must protect the highly sensitive consumer financial and health information that they collect as part of the underwriting and claims process.

Amid the rising incidence of cyber-attacks, we continue to look for a balance between the benefits and perils for consumers in how insurers use their data. Concerned about the many reported cyber breaches, speedy and consistent adoption of the NAIC data security model act is our best defense.

In addition to being responsible for their own cybersecurity, insurers are also underwriting commercial cybersecurity policies. The global market for cyber insurance purchased by businesses is expanding, and we must manage that growth responsibly.

We know insurance drives best practices throughout the economy. Shoring up our cyber footprint against attacks will come, in part, by the disciplines imbedded in the underwriting process, and we must support this growing market.

Cybersecurity is tied to data and innovation, and the NAIC is working to keep pace, if not stay ahead, of that change. I hope you will come to Kansas City in June for our week-long Insurance Summit.

There we will bring regulators, insurers and innovators together to explore where our sector is headed.

Group Capital

Just as companies are exploring new product lines and data use, the NAIC is enhancing how regulators assess the financial strength of companies in the insurance space. In late 2015, the NAIC started exploring the development of a group capital calculation.

It was a natural extension of the work state regulators were already doing, to better understand the risks to insurance groups. This analytical tool will give us information relating to capital across an insurance group—including both insurance and non-insurance affiliates.

The Group Capital Calculation is essentially a new reporting template that builds on and complements existing reporting requirements through the holding company act.

We still have quite a bit of work to do before implementation, but the revised field-testing template and instructions are near completion. Our target for field testing is May first. We anticipate more than 30 insurance groups will participate by completing the template and working with their lead state to test its effectiveness. The test results will improve our process before we finalize the GCC, likely next year.

We are committed to moving forward with this important project. We are focused on a GCC that is tailored to the regulatory and accounting system in this country. It also must recognize the important role the insurance sector needs to play in addressing challenges such as ageing populations and infrastructure.

Macroprudential Initiative

Building on financial strength and security, our focus has evolved to include the broader risks which affect insurers and financial market stability. Interconnected markets mean regulators have a duty to enhance risk identification efforts.

We must support a regulatory environment which fosters stable financial markets. We will do this by analyzing how the insurance sector is impacted by, reacts to and contributes to various risk exposures in the broader financial markets and economy.

The Macroprudential Initiative builds on the strengths of our state-based system. It allows us to identify improvements and recognize the potential impact from international standard-setting and federal interest in the insurance sector.

The MPI focuses on four areas: liquidity, resolution and recovery, counterparty exposures and capital stress testing.

This year, we plan to finalize a liquidity risk assessment framework for select life insurers. We will also expand the number of tools available to regulators to better assess financial market and economic trends. The MPI is embedded in State Ahead and informs our work internationally.

International

Which brings me to our last priority, international activities. As the world's largest insurance market, we in the United States must engage globally, both through standard-setting organizations and through regional and bilateral engagement.

For the last several years, the International Association of Insurance Supervisors has been developing a global insurance capital standard. It is intended for jurisdictions, including the United States, to apply to internationally active insurance groups.

While the International Capital Standard is not binding on the states or federal government, it is the first attempt at a globally harmonized approach to capital for insurance groups.

It’s fair to say we have significant concerns with various aspects of the current ICS formula and key aspects of the projects. The results from 2018 field testing suggests there is a lot more work to be done. We hope the 2019 field testing will produce more credible results.

But make no mistake. We have no intention of taking on board any international standard which doesn’t fit with—and add value to—our system of regulation. Thus, the NAIC is pursuing three objectives.

The first is to attempt to make improvements to the reference ICS where we can for those U.S. insurers who may have to comply with ICS or ICS-like standards in other markets.

Second is to secure comparable outcome status for our aggregation method.

Third is to continue to engage bilaterally and secure mutual recognition of our system with key jurisdictions such as the EU, the UK, Japan, Bermuda, Switzerland and others. We are united with our Team USA colleagues in reaching these important goals.

For more in-depth discussions around our work globally, please join us in Washington, D.C. in May for our International Insurance Forum.

We have a world-class insurance regulatory system in this country—and collectively we all just need to do a better job of reminding the rest of the world of that fact.

Conclusion

Suffice it to say, we have a lot to keep us busy and out of Disney World. At times it feels as if there are more moving pieces to keep track of than a space launch. But the people around this table and in the audience have “the right stuff,” and are committed to success.

Although the tasks ahead of us loom large and are complicated, and we will not likely be remembered in the history books, each one of us will leave our footprints on the lives of the people we serve. Just like Neil Armstrong, we cannot do it alone. The only way to make progress and succeed is by moving together.

Thank you for the honor of being president of this great team.