Insurtech Regs, ‘Dark Pattern’ Spottting on NAIC’s To-Do List

Link: https://www.thinkadvisor.com/2022/12/16/insurtech-regs-dark-pattern-spottting-on-naics-to-do-list/

Excerpt:

In August [2022], Birny Birnbaum, the executive director of the Center for Economic Justice, asked the [NAIC] Market Regulation committee to train analysts to detect “dark patterns” and to define dark patterns as an unfair and deceptive trade practice.

The term “dark patterns” refers to techniques an online service can use to get consumers to do things they would otherwise not do, according to draft August meeting notes included in the committee’s fall national meeting packet.

Dark pattern techniques include nagging; efforts to keep users from understanding and comparing prices; obscuring important information; and the “roach motel” strategy, which makes signing up for an online service much easier than canceling it.

Author(s): Allison Bell

Publication Date: 16 Dec 2022

Publication Site: Think Advisor

2022 Insurance Regulation Report Card

Link: https://www.rstreet.org/2022/12/12/2022-insurance-regulation-report-card/

PDF link of report: https://www.rstreet.org/wp-content/uploads/2022/12/r-street-policy-study-no-272.pdf

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KEY POINTS

  1. The RSI Insurance Regulation Report Card analyzes and evaluates the effectiveness of state government regulation of property and casualty insurance and assigns a letter grade to all 50 states. The grade for each state was calculated by adding the weighted results from seven categories.
  2. The highest grades were for Kentucky and Arizona, both of which received an A+. At the other end of the spectrum, California and Alaska both scored an F.
  3. 20 states had a higher grade than they did in R Street’s 2020 edition of the Report Card, 23 maintained the same grade and seven had lower grades. This result is positive and means that insurance regulatory regimes have become more effective and efficient in the past two years.

Executive Summary
We are pleased to present the 10th edition of R Street’s Insurance Regulation Report Card, which analyzes and evaluates the effectiveness of U.S. insurance regulation of property and casualty insurance. The first iteration of this report was published in June 2012, and this 2022 edition largely follows the format of prior reports. It begins with a brief introduction on the current landscape of U.S. insurance regulation; reviews recent, relevant federal and state-based regulatory changes; presents a detailed evaluation of the effectiveness of each state’s regulation of insurance in seven key categories; and synthesizes those category evaluations by offering a “report card” grade for each state for analysis and comparison purposes.

This report draws on 2021 year-end statutory insurance financial statistics and the most recent datasets available for non-financial information. Sources include data and reports from the National Association of Insurance Commissioners (NAIC), S&P Global Market Intelligence, National Conference of State Legislatures, R Street analyses and others, all of which were accessed through Sept. 30, 2022.

In this report, we seek to shed light on the same three foundational issues we have focused on in past iterations of this report card:
• How free are consumers to choose the insurance products they want?
• How free are insurers to provide the insurance products consumers want?
• How effectively are states discharging their duties to monitor insurer solvency and foster competitive, private insurance markets?

Author(s): Jerry Theodorou

Publication Date: 12 Dec 2022

Publication Site: R Street

NAIC 2021 Annual/2022 Quarterly Financial Analysis Handbook

Link: https://content.naic.org/sites/default/files/publication-fah-zu-financial-analysis-handbook.pdf

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The risk-focused surveillance framework is designed to provide continuous regulatory oversight. The risk-focused approach requires fully coordinated efforts between the financial examination function and the financial analysis function. There should be a continuous exchange of information between the field examination function and the financial analysis function to ensure that all members of the state insurance department are properly informed of solvency issues related to the state’s domestic insurers.

The regulatory Risk-Focused Surveillance Cycle involves five functions, most of which are performed under the current financial solvency oversight role. The enhancements coordinate all of these functions in a more integrated manner that should be consistently applied by state insurance regulators. The five functions of the risk assessment process are illustrated within the Risk-Focused Surveillance Cycle.


As illustrated in the Risk-Focused Surveillance Cycle diagram, elements from the five identified functions
contribute to the development of an IPS. Each state will maintain an IPS for its domestic companies. State
insurance regulators that wish to review an IPS for a non-domestic company will be able to request the IPS from the domestic or lead state. The documentation contained in the IPS is considered proprietary, confidential information that is not intended to be distributed to individuals other than state insurance regulators.

Please note that once the Risk-Focused Surveillance Cycle has begun, any of the inputs to the IPS can be changed at any time to reflect the changing environment of an insurer’s operation and financial condition.

Author(s): NAIC staff

Publication Date: 1 Jan 2022

Publication Site: NAIC

Congressional Hearing Considers Private Equity-Controlled Insurers

Link: https://communications.willkie.com/110/1827/uploads-(icalendars-pdf-documents)/congressional-hearing-considers-private-equity-controlled-insurers.pdf

Excerpt:

On September 8, 2022, the U.S. Senate Committee on Banking, Housing and Urban Affairs (“Senate Banking Committee”) held a hearing to consider “Current Issues in Insurance.” One of the items discussed at the hearing was Senator Sherrod Brown’s (D-OH) March 2022 letter to the National Association of Insurance Commissioners (the “NAIC”) and U.S. Department of the Treasury’s Federal Insurance Office (“FIO”) regarding private equity-controlled insurers.1

In his letter, Senator Brown requested that FIO, in consultation with the NAIC, prepare a report for Congress that evaluates the investment strategies pursued by private equity-controlled insurers, the impact on protections for pension plan beneficiaries following pension risk transfer arrangements, and whether state regulatory regimes are capable of assessing and managing risks related to private equity-controlled insurers. In the early summer, the NAIC and the U.S. Department of the Treasury (on behalf of FIO) each provided substantive responses to Senator Brown.2

Author(s): Kara Baysinger | Leah Campbell | Jane Callanan | Matthew J. Gaul
Donald B. Henderson, Jr. | David G. Nadig | Allison J. Tam

Publication Date: 27 Sept 2022

Publication Site: Willkie Farr & Gallagher

Letter to FIO and NAIC from Senate Banking Committee

Link: https://www.banking.senate.gov/imo/media/doc/brown_letter_on_insurance_031622.pdf

Excerpt:

  1. What risks do the more aggressive investment strategies pursued by private equity-controlled insurers present to policyholders?
  2. What risks do lending and other shadow-bank activities pursued by companies that also
    own or control significant amounts of life insurance-related assets pose to policyholders?
  3. Are there risks to the broader economy related to investment strategies, lending, and
    other shadow-bank activities pursued by these companies?
  4. In cases of pension risk transfer arrangements, what is the impact on protections for
    pension plan beneficiaries if plans are terminated and replaced with lump-sum payouts or
    annuity contracts? Specifically, how are protections related to ERISA and PBGC
    insurance affected in these cases?
  5. Given that many private equity firms and asset managers are not public companies, what
    risks to transparency arise from the transfer of insurance obligations to these firms? Will
    retirees and the public have visibility into the investment strategies of the firms they are
    relying on for their retirements?
  6. Are state regulatory regimes capable of assessing and managing the risks related to the
    more complex structures and investment strategies of private equity-controlled insurance
    companies or obligations? If not, how can FIO work with state regulators to aid in the
    assessment and management of these risks?

Author(s): Sen. Sherrod Brown

Publication Date: 16 March 2022

Publication Site: U.S. Senate Banking Committee

Current Issues in Insurance

Link: https://www.banking.senate.gov/hearings/current-issues-in-insurance

Excerpt: https://www.banking.senate.gov/imo/media/doc/Brown%20Statement%209-8-22.pdf

Statement from Chair Sherrod Brown (D-OH)

Every American needs insurance – whether it’s auto insurance to protect us when we’re on the
road, or homeowners’ insurance to protect the biggest investment for most families, or life
insurance to cement your family’s financial security in the event of a tragedy.
It’s our job to make sure that the industry is protecting Americans’ hard-earned money – not
putting it at risk.
American insurance companies are regulated by state insurance commissioners. The state-based
system of insurance regulation is historic, and ensures local markets and needs are taken into
consideration.
The National Association of Insurance Commissioners coordinates state commissioners across
all jurisdictions, to identify and address risks to the entire system.
In the Wall Street Reform Act, Congress created the Federal Insurance Office within the
Treasury Department to promote national coordination in the insurance sector. It’s common
sense – insurers operate across all state jurisdictions and internationally.
I’m pleased to have both the Maryland Commissioner Kathleen Birrane on behalf of the NAIC,
and Director Seitz of FIO testify today.
If we’re going to keep Americans’ hard-earned money safe, it is more important than ever that
they work together.
Today we’ll explore many important topics.
For example, three months ago, Lockheed Martin transferred $4.3 billion of its pensions to
Athene Holding – an insurance holding company specializing in life insurance and owned by the
private equity firm, Apollo Global Management.
Overnight, Lockheed Martin employees and retirees were notified that their pensions would be
managed by Athene and no longer governed by ERISA or the Pension Benefit Guaranty
Corporation.
This is just one recent example of private equity giants’ expansion into people’s pensions and the
insurance industry.
We know that workers end up worse off when Wall Street private equity firms get involved.
We’ve seen it over and over, in industry after industry.
In March, I asked the NAIC and FIO to look into private equity’s expansion into similar pensionrisk transfer transactions. We need to understand the risks to workers whose financial security
depends on pension and retirement programs.
The NAIC and FIO provided thoughtful responses to my letter. The NAIC has been monitoring
the risk-taking behavior of private equity-owned insurers.
FIO has done similar work, and also looked at the wider interconnectedness of insurance and
reinsurance markets across the world. Those connections have added to systemic risk concerns,
because U.S. insurance companies depend even more on the financial health of insurance
companies outside the U.S.
Taken together, our insurance authorities are focused on these emerging and complex risks to
safeguard our economy.
Our communities and families rely on insurance companies to protect their loved ones, their
homes, small business, and so many parts of our lives. We can’t ignore when risks build up, or
firms behave irresponsibly.
And we know who always pays the price when they do. It’s not insurance executives. It’s not
private equity executives. It’s not Wall Street.
It’s workers and their families. And it’s taxpayers, who were forced to bail out AIG 15 years ago.
That should never happen again.
That also means looking around the corner to make sure the industry and agencies are prepared
for risks as they develop. As more Americans face increasingly severe climate catastrophes like
wildfires and hurricanes each year, we need to help communities prepare – and we need to
ensure insurance watchdogs and the companies they oversee are prepared.
In the aftermath of some of these natural disasters, we have seen instances where insurers either
raise prices or stop offering insurance altogether, leaving families and businesses struggling to
find affordable coverage as they rebuild their lives and communities.
We also know this industry has a long history of racial discrimination, just like so many big
industries.
Black and brown families face more difficulty in getting insurance across the board. We’ve seen
this happen in auto insurance.
Earlier this year, The New York Times also reported that customers, insurance agents, and
employees sued State Farm for discrimination in the workplace and in paying out claims.
My colleague Chairwoman Waters has been working on learning more about this as well. Her
committee recently requested information about large life and P&C insurers’ involvement in
financing chattel slavery.
And I’m glad FIO and NAIC are also working on this. NAIC is investigating through its Special
Committee on Race and Insurance.
And I look forward to reviewing FIO’s upcoming report on availability and affordability of auto
insurance, and hope it will shed more light on racial equity in accessing this insurance.
Finally, later this year, the International Association of Insurance Supervisors will meet to
consider whether the U.S. insurance system’s review of capital adequacy standards meets
international criteria.
Because we regulate insurance differently here in the U.S., where state and local markets and
international markets are served by the same companies, it’s important that representatives of the
U.S. system like FIO and the NAIC advocate for fair treatment by the international regulators.
And now that the Fed Vice Chair for Supervision has been confirmed, Michael Barr and the
offices testifying here today will get to work with our international counterparts in this process.
All of these issues show how critical the work of FIO and NAIC is to our economy’s health and
stability. I expect FIO and NAIC to prioritize monitoring these risks in their ongoing work.

Publication Date: 8 Sept 2022

Publication Site: COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS of the U.S. Senate

A Framework for Defining a Role for Insurers in “Uninsurable” Risks: Insights from COVID-19

Link: https://content.naic.org/sites/default/files/JIR-ZA-40-10-EL.pdf

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RETHINKING UNINSURABILITY While many have viewed insurability as a binary choice with respect to a risk (i.e., insurable or uninsurable), insurability is more appropriately considered on a continuum, ranging from easy-to-insure, such as automobile or life insurance, to difficult-to-insure, such as pandemic, loss of the electrical grid, and other extreme catastrophic risks.

FRAMEWORK The role of private and public sectors in dealing with risks that are difficult-to-insure should be to develop strategies that enable a greater degree of insurability. To do so, the framework suggests that policymakers consider three fundamental options in dealing with the insurance industry:

Status Quo (SQ) –This option (SQ) contemplates a similar dynamic to that experienced with COVID-19, wherein businesses, nonprofits, and local governments found limited (if any) insurance coverage for their losses and ex post relief programs funded by the government.

Service Provider (SP) – This option (SP) contemplates an administrative, non-risk-bearing role for the insurance industry while the entire cost of claims would be publicly financed.

Service and Risk (SR) –In addition to its role as a service provider as characterized by SP, this option (SR) would expect insurers to commit capital – in an amount that does not threaten their financial viability – to cover a specified layer or other defined element of losses.

Author(s): Howard Kunreuther, Jason Schupp

Publication Date: 2021

Publication Site: NAIC

Mid-Year 2022 Capital Markets Update

Link: https://content.naic.org/sites/default/files/capital-markets-special-reports-mid-year-2022-update.pdf

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The shape of the Treasury yield curve generally provides insight into the market’s expectations for
interest rates, as well as economic activity. As of June, the yield curve has shifted higher and flattened
compared to the beginning of the year and the last year. The Federal Reserve’s recent aggressive actions
have resulted in the higher Treasury rates and a flattening of the yield curve, as many investors believe
higher rates will push the U.S. economy into a recession. The yield curve also inverted briefly in midJune, which market participants view as a recession signal.

As of year-end 2021, U.S. insurers had exposure to about $316.3 billion in U.S. government bonds across
various maturities, or about 6% of total cash and invested assets. This was an increase from $280.6
billion at year-end 2020, but it was unchanged as a percentage of total cash and invested assets.

Author(s): Jennifer Johnson and Michele Wong

Publication Date: 23 June 2022

Publication Site: NAIC Capital Markets Special Report