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Health and Life Insurance Advisory Council

Insurance Regulation Law Update William J. Toman

The business and regulatory environment for insurance is constantly changing, and part of our client service platform involves staying on top of those changes. One way we do this is by attending the periodic meetings of the industry-regulator-consumer liaison committees sponsored by the Wisconsin Office of the Commissioner of Insurance (OCI) for life, health, and property and casualty insurance. The following is our report on the discussion from the most recent meeting of the Health and Life Insurance Advisory Council.

OCI Updates

Staff Changes. Amy Malm was promoted from Examiner Supervisor to Director of the Bureau of Financial Analysis and Examinations; Zach Bemis was appointed as Chief Legal Counsel (he spent the last 5 years working in the legislature, including chief of staff to the Assembly Co-Chair of the Joint Committee on Finance and legal counsel and advisor to the Speaker of the Assembly); and Lauren Van Buren joined the legal staff, where she is taking over for Robin Jacobs (she was most recently at the Department of Agriculture, Trade, and Consumer Protection).

Bureau of Market Regulation Reorganization. Rebecca Rebholz, Director of this bureau, reported that OCI realigned the various units of the bureau in July 2017, creating units for market analysis, rates and forms, system support, and consumer affairs (which covers all lines of business). The agent licensing unit remains. Lisa Brandt is chief of the rates and forms unit, and John Kitslaar, chief of the former life and health unit, retired.

National Association of Insurance Commissioners (NAIC) Committees. Deputy Commissioner J.P. Wieske reported that, for the most part, OCI is participating in the same committees as in prior years. Now that Commissioner Ted Nickel has finished his term as President of the NAIC, he is back on a letter (major) committee, that is, the Health Insurance and Managed Care (B) Committee. Under that committee, he chairs the Health Care Reform Regulatory Alternatives Working Group and the Regulatory Framework Task Force. He is also Vice Chair of the Innovation and Technology (EX) Task Force. OCI is also active in many financial committees, and participates in 47 committees overall.

Life Insurance

Other reports on the NAIC included the following:

Annuity Suitability. Richard Wicka, OCI’s deputy chief legal counsel, reported that OCI is a new member of this working group, which exposed a chair draft of the revised model law for comment last year (staff prepared a nice chart summarizing the comments). The main changes proposed for the model are using a "best interest" of the consumer standard, which is a higher one than the current model (and the Wisconsin standard), but lower than the fiduciary rule proposed by the U.S. Department of Labor; and changes to compensation disclosure requirements. There is general support for best interest standard aside from agent groups. The working group has an upcoming conference call and will meet at the Spring NAIC meeting in Milwaukee.  Interested parties should let him know of any comments. Council Co-chair Greg Gurlik of Northwestern Mutual Life (NML) noted that the New York regulator seems to want to extend the best interest standard to life insurance, though that standard probably does not transfer well.

Life Insurance Disclosures. Richard Wicka reported that this working group is looking at a new approach to illustrations, which would boil down all the information needed by consumers to a one or two page summary. A vision for this summary - which is an example, not a template - is included on the NAIC web site. One aim is to make life insurance more accessible to young people. As is the case with many NAIC committee activities, the working group hopes to complete its work by the end of the year.

Life Insurance Policy Finder. Elizabeth Hizmi, OCI's Legislative Liaison and Public Information Officer, noted that this NAIC program has returned $92.5 million to consumers since it was launched at the end of 2016.

Long-Term Care (LTC). J.P. Wieske reported on several issues:

  • Rate Increases. OCI is still seeing large rate increases, and appreciates the industry's desire to mitigate these increases by extending them over many years; however, that approach can mislead consumers on full impact of increases, so OCI is pushing back on multiyear filings to keep them year-to-year, with major increases up front. Many at the NAIC are still pontificating on LTC rate increases, but there is not a lot of consensus on a solution because each state wants to retain the right to craft its own approach. In response to a question about the reason for the increases, J.P. Wieske said there are a number of issues and nobody has clean hands: the industry rate estimates were off, and regulators allowed them; some companies held off on increases for too long; and the low interest environment has exacerbated the problems. Greg Gurlik noted that the industry is hoping for some uniformity in what regulators want in rate filings, as this will help ensure there is a market for this product. J.P. Wieske reiterated that the rating issues are complex, with some states are not granting appropriate increases as punishment for perceived industry misbehavior, leading to OCI concerns about Wisconsin consumers subsidizing those in other states; there are also many closed blocks of business that do not include enough policies for credible ratemaking.
  • Short Duration Policies. Consumer representatives at the NAIC had concerns about "short-term care" products (e.g., covering rehabilitation for an accident). They originally wanted the LTC standards to apply, but now seem to realize that doesn't make sense. Regulators are trying to decide which LTC model regulations should apply, looking at the model line-by-line, and, again, hope to complete that work by the "end of the year." Greg Gurlik noted that the main industry issues are requiring underwriting even when it is not necessary, and how much agent training should be required (4 hours seems to be the consensus).  J.P. Wieske said there is also an existential concern, in that some states are taking the position that short duration policies are not allowed unless they are specifically authorized by state law.
  • Non-Duplication of Benefits. The industry is interested in standards that will prevent consumers with more than one policy from recovering more than once for the same loss (even if the multiple policies are from the same company). The initial discussion revolved around a product standard through the Interstate Insurance Product Regulation Commission (IIPRC), but there has also been some discussion of a model law. Greg Gurlik said this issue is important to companies like NML, which have long term relationships with consumers who build coverage over time. Making it an IIPRC standard would allow use of that streamlined filing system.

Life Insurance Buyers Guide. J.P. Wieske reported that this working group is continuing to revise the language of the guide, including via conference calls, and, again, hopes to complete work by the "end of the year."

Variable Annuity Reserves. J.P. Wieske noted that last month Oliver Wyman issued its report on whether capital standards for variable annuities are working. The variable annuities working group and an NAIC financial subgroup are jointly working through the report. Greg Gurlik said the standards haven't worked, so the goal is to fix them.

Accelerated Underwriting. J.P. Wieske reported that OCI has received inquiries about using publicly available information about people - such as credit information (not credit scores) and social media posts (that might show things like smoking status) - for underwriting purposes. OCI's concerns are with using such information as the sole factor (e.g., not giving consumers an opportunity to rebut conclusions); ensuring that consumers understand that such information is being used; and recognizing that correlation does not necessarily equal causation.  OCI has discussed the issues, but is not aware of any implementation of such underwriting.

Health Insurance

Section 1332 Waiver. J.P. Wieske reported that the Health Care Stability Act has been signed into law, and will permit OCI to seek a state innovation waiver from the federal government under the Affordable Care Act (ACA) to allow for the operation of a reinsurance program for the individual market. OCI has a draft of a waiver application that is heavily based on Oregon's application, and an actuarial report from Wakely. OCI will circulate the draft and begin public hearings around the state within a week; will hold a public hearing at the Spring NAIC meeting in Milwaukee; and is accepting public comments here through April 14. OCI has had ongoing conversations with the Centers for Medicare and Medicaid Services (CMS), vendors, and other states that have sought waivers (Oregon, Minnesota, and Alaska). OCI should be able to submit the waiver application to CMS by mid-April for a $200 million reinsurance program under which CMS would pay a significant share. In response to a question about whether Wisconsin would waive the 5 year moratorium on insurers who left the market, J.P. Wieske noted that Kentucky waived its moratorium, and that OCI would view a waiver as pro-consumer (though OCI would feel better about a waiver for carriers that stayed in the individual market even if they left the exchange).  He also noted that the moratorium applies at the licensee level, not the group level.

Network Adequacy. J.P. Wieske noted that OCI distributed draft legislation earlier this year, and received a lot of comments. OCI didn't believe the proposal could pass this session, so they will have broader discussions over the summer for changes in 2019; those who wish to participate in this broader discussion should contact him. Basically, OCI's view is that shrinking networks to control costs and manage care has to be balanced with consumer concerns, with the macro concern being an adequate network for consumers, and the micro concern being availability of needed in-network care (e.g., the plan will cover neo-natal surgery in-network, even if the plan has no contracted providers).

ACA Enrollments. J.P. Wieske reported that there were about 225,000 enrollments through the exchange for Wisconsin during the last open enrollment. Those who enrolled faced big premium increases, which will be addressed by the reinsurance program. As for 2019 rates, OCI is waiting for CMS to issue its benefit and payment parameters, but anticipates a July 2 rate filing deadline. This may be earlier than the CMS deadline, but OCI had to deal with staffing needs. In response to a question, J.P. Wieske said OCI may allow rate filings to be in the alternative depending on the section 1332 waiver, and that there may be developments at federal level that will affect the rate filings as well. In response to a question about whether there has been any discussion of allowing enrollees to scale back coverage due to a life event, J.P. Wieske said that federal rules do not allow such changes, but that it may be good to raise this issue with CMS.

General Issues

Innovation/Big Data. J.P. Wieske noted that big data has not had as big an impact on life and health insurance as it has on property and casualty insurance (where Cari Lee, Administrator of OCI's Division Regulation and Enforcement, has warned of million page rate filings). However, carriers have started discussions with OCI on the use of wearable devices to collect data from insureds. Such devices should not be an unfair inducement if they are shown as a policy benefit and are available to all insureds; however, OCI got a wide variety of views from trade associations on what constitutes an unfair inducement. Federal rules on wellness plans also might make it difficult to use such devices; Cari Lee indicated that their use is probably more of an issue for life insurers.

Disability Insurance Table. J.P. Wieske noted that prior tables are referenced in the existing OCI rule on reserves, but that new tables are being issued by the NAIC. Greg Gurlik explained that the issue is implementation of the new tables where state doesn't incorporate them by reference. Richard Wicka said that OCI is looking at making use of the new tables an accepted (not permitted) accounting practice on a company-by-company basis.

OCI Technical Legislation. Elizabeth Hizmi explained that this proposal mainly adopts the NAIC corporate governance model act, but that it also deals with confidentiality of certain information filed with OCI; eliminates an obsolete medical malpractice report; and revises membership on the Wisconsin Compensation Rating Bureau rating committee. The proposal has passed the Assembly, and OCI expects Senate action later this month.

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