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Property and Casualty Advisory Council

Insurance Regulation Law Update William J. Toman

OCI Complaint System and Web Portal

Scott Bradach, with information systems ("IS") at the Wisconsin Office of the Commissioner of Insurance ("OCI"), explained the how insurance company representatives will be able to access OCI functions over the web via the Web Access Management System ("WAMS"), which is also used by other state agencies. Functions that may be accessed via WAMS will include consumer complaints, rate review, the Injured Patients and Compensation Fund, and premium taxes. Each company will have an administrator, who will be able to authorize and manage other users from the company. In this phase there will be no access by insurance agents, who will continue to deal with OCI by mail. The system should go live in spring 2013.

Stakeholder Outreach

J.P. Wieske, OCI's Legislative Liaison and Public Information Officer, reported that OCI has partnered with Madison College, veterans groups, and the industry to create a "rapid hire" pilot program for select veterans who are graduating around the end of the year from an accelerated insurance certificate program. The program has garnered interest from other parts of the state as well. Jim Guidry, an OCI legislative analyst, noted that a program waiving fees for certain initial OCI and other licenses for veterans took effect on July 1.

OCI also continues to work on a number of unique tribal issues, including underserved populations, and work by Sue Ezalarab, Director of the Bureau of Market Regulation, and Amit Trivedi, Management Information Chief, to deal with sovereignty issues that arise with complaints filed by tribal members.

OCI has conducted broader outreach and consumer education through more than 150 meetings and events attended by Commissioner Ted Nickel, Deputy Commissioner Dan Schwartzer, Examiner Ashley Natysin and others. Yesterday, for example, OCI representatives participated in an Edgewood College program for teachers on financial literacy. Internally, Jim Guidry has worked on updating a number of OCI publications, including Spanish language editions.

In response to a question, J.P. Wieske noted that the Office of Financial Literacy at the Department of Financial Institutions is handling consumer outreach regarding credit scoring.

Disaster Preparedness

J.P. Wieske noted that, while OCI responded quickly to the recent flooding in northern Wisconsin, the agency is trying to organize better for such events. OCI's outline of its action plan is available from Quarles & Brady upon request.

National Flood Insurance Program ("NFIP")

Jim Guidry reported that the NFIP was set to expire July 31 after another 60-day extension, one in a long line of extensions (though this extension did include a phased-in exclusion of vacation and second homes from subsidized rates). However, Congress finally passed a long-term extension of the NFIP to 2017. This extension also included a variety of reforms to make the program more self-sustaining and other provisions:

  • Subjects more properties to a phased-in exclusion from subsidized rates, including business properties and high-loss properties; however, actuarially-based rates are phased in over five years.
  • Imposes minimum deductibles on claims.
  • Requires a report on options for repaying the NFIP's debt, most of which is from Hurricane Katrina, within 10 years, and establishes a reserve fund for the program's obligations.
  • Establishes a mapping council to improve flood insurance rate maps.
  • Requires development of a methodology for reimbursing insurers participating in the write-your-own program.
  • Requires federally regulated lenders to accept private flood insurance if it has coverage similar to the NFIP.
  • Extends coverage to multifamily dwellings with five or more residences.
  • Requires the Commerce Department to develop a formula for allocating losses between wind and flood for named storm events.
  • Government Accountability Office ("GAO") studies on improvements to the NFIP, possible privatization (along with an NFIP report on possible use of reinsurance), coverage for additional living expense and business interruption, and tribal participation in the program.
  • An annual report to Congress on the NFIP.
  • A Federal Emergency Management Agency ("FEMA") study of NFIP affordability, including the possibility of using targeted assistance instead of subsidized rates.
  • A Federal Insurance Office study of the market for natural catastrophe insurance.

OCI's section-by-section outline of the legislation is available from Quarles upon request.

Force Placed Insurance

Council chair Misha Lee of Sentry said he asked OCI to add lender-placed property insurance to the agenda because it's an issue elsewhere, and he hoped to get OCI's views of the issue. J.P. Wieske said there will be a hearing at the August meeting of the National Association of Insurance Commissioners ("NAIC") with testimony from two of the largest writers of this business (with about 85 percent of the market). The notice of the hearing distributed by OCI is available from Quarles upon request. The hearing was pushed by consumer groups and the Mississippi insurance commissioner because of the high premiums (which are not surprising) and low loss ratios for this business (as well as administrative issues), but there are no plans for a model act. Much of the concern involves banking issues, including using the insurance as a profit center, high commissions and kickbacks, and difficulties in cancelling and getting proof of coverage.

Sue Ezalarab said the federal Consumer Financial Protection Bureau ("CFIB") is looking at the impact of lender-placed insurance on troubled mortgages and alternatives to such insurance, and will propose regulations soon. CFIB releases distributed by OCI are available from Quarles upon request. The complaints OCI receives are in this area and involve mortgage servicers; however, OCI's role is limited to insurance, so OCI works with federal bank regulators.

An audience member suggested that the NAIC should have a focused solution for a narrow problem like this in order to avoid unintended consequences. Misha Lee noted that lenders do have a clear interest in the property. Maggie Bringa, an agent member on the Council, noted that the problem is high cost for low coverage.

Electronic Proof of Coverage

Misha Lee said the Independent Insurance Agents of Wisconsin want to pursue legislation that would allow (but not require) motorists to use electronic proof (e.g., via a smartphone) that they have the required auto liability insurance. A draft of the proposal, fact sheet, and trade association releases distributed by OCI are available from Quarles upon request. An audience member noted that this proposal would only allow an electronic rendering to serve as proof of insurance, and should be distinguished from a requirement that insurers provide real-time proof (which is beyond the capabilities of insurer information systems). Pete Hanson, a public representative on the Council from the Wisconsin Restaurant Association, suggested that neither motorists nor law enforcement want a real-time proof requirement. Another audience member suggested that proponents seek input from law enforcement.

Own Risk and Solvency Assessment ("ORSA")

OCI Division Administrator Gina Frank reported that the NAIC has issued an ORSA guidance manual and draft model act, copies of which are available from Quarles upon request. This insurer self-assessment requirement only applies to insurers with more than $500 million in premium or that are in groups with more than $1 billion in premium, and would not be prescriptive; the idea is that the report would look like one insurers might provide to their board. OCI has already implemented risk-focused exams for insurers. ORSA is part of a general NAIC effort to work with the states and other countries on solvency and enterprise risk management issues.

NAIC discussion of confidentiality issues and use of the information will continue, so that a model may be finalized by the end of the year to be implemented in 2015 or later. At that point OCI would adopt the model by rule, though J.P. Weiske noted that legislation may be necessary to protect confidentiality. Council member Chris Zwygart of West Bend Mutual noted that confidentiality is important given that business strategy is one of the main risks that must be evaluated. Rick Parks noted that there ought to be a penalty for states that ignore confidentiality requirements in the model.

Misha Lee asked how ORSA is different from the process a company undertakes with rating agencies. J.P. Weiske said that ORSA is a self audit, where a company takes an honest look at itself and uses the results for planning purposes.

Auto Insurance and Low-Income Households Study

Sue Ezalarab reported that a joint effort of the NAIC's Property and Casualty and Market Regulation and Consumer Affairs Committees has created a proposed work plan on issues relating to low-income households and the auto insurance marketplace, a copy of which is available from Quarles upon request. The project arose mainly out of discrimination concerns on the part of the Consumer Federation. The Committees will consider the work plan at the August NAIC meeting.

In response to a question from Council member Mike Ruder of Rural Mutual, Sue Ezalarab explained that this project is more in-depth than the credit scoring issue. She also noted that Wisconsin has a competitive market with a residual market that is not very large.

For more information on the Insurance Regulation Group, please contact William Toman at (608) 283-2434 / william.toman@quarles.com or your Quarles & Brady attorney.