A Year and Change: Insurance in a New Administration

For the 14th year, Faegre Baker Daniels partnered with Networks Financial Institute (NFI) at the Indiana State University Scott College of Business to present the Insurance Public Policy Summit in Washington, D.C. This year's Summit focused on how the Trump administration’s first year has impacted the insurance industry and featured in-depth discussions on the direction of state, federal and international policy in 2018 and beyond.

Below are highlights from the NFI Summit presentations.

Introduction

Dr. Deborah J. Curtis, President of Indiana State University and Dr. Brien N. Smith, Dean of Indiana State’s Scott College of Business, welcomed the standing room-only audience of industry professionals, congressional staff, past and current state regulators, federal officials, academics, and industry stakeholders and commentators. Student Monica Griesemer spoke for the NFI Scholars.

Capitol Hill Perspectives

Rep. Bill Huizenga (R-MI), Chairman of the House Financial Services Subcommittee on Capital Markets, Securities and Investment, kicked off the presentations with an overview of recent activities on the Hill. Faegre Baker Daniels Consulting Chair Dave Zook introduced Chairman Huizenga.

• Chairman Huizenga shared his excitement for the regulatory reform legislation coming out of the Senate, but noted that the House has passed over 30 bipartisan bills that should be added before the package makes its way to President Trump.
• He indicated that his subcommittee will continue to engage with FinTech and is looking at cryptocurrency and blockchain technology innovations and issues that can benefit producers, consumers and regulators.
• Chairman Huizenga took a few questions about the National Flood Insurance Program and urged interested parties to remain persistent with outreach to senators; he expressed frustration at the lack of movement thus far, and argued that interested parties need to coordinate and highlight the importance of this issue.
• In response to a question regarding international standard setting, the Chairman noted the importance of preserving the state-based insurance regulatory system. He stressed the need for better communication between international negotiators, state regulators and Congress. The Chairman wants to ensure that activities of these standard setting bodies do not supersede U.S. laws.

Team USA: The Road Out of Kuala Lumpur

Michael F. Consedine, CEO of the National Association of Insurance Commissioners, Steven E. Seitz, Deputy Director of the Federal Insurance Office of the U.S. Department of Treasury, and Thomas R. Sullivan, Associate Director of the Division of Supervision and Regulation of the Board of Governors of the Federal Reserve System provided a report from the recent landmark IAIS meeting in Kuala Lumpur and provided details on what is next on the international stage. The panel was moderated by FaegreBD Partner Sara Powell.

• On Insurance Capital Standard Setting: Seemingly speaking with one voice on the IAIS’s development of the Insurance Capital Standard, all three Team USA representatives stressed the need for the U.S. to develop a useful and credible aggregation approach (as opposed to the Market Adjusted Valuation approach used by European regulators). The introduction of the aggregation approach in Kuala Lumpur was a major development, and now U.S. regulators must construct a capital regime so that Team USA can make a case for comparability in the future. The NAIC, of course, is well on its way to the development of a group capital calculation using an aggregation method.
• On the Activities-Based Approach: All three Team USA representatives spoke in favor of an Activities-Based Approach (ABA) to systematic risk, as opposed to the entity-based approach codified under the Dodd-Frank Act. Mr. Sullivan recognized that an ABA is not a panacea, and regulators are only as good as the last activity they saw. Mr. Consedine explained that the ABA is a rational pivot but noted that there are still questions regarding how it will be used and to which companies it will apply.

Leading in a Time of Change: Issues, Outlook and Industry Perspective

Charles M. Chamness, President and CEO of the National Association of Mutual Insurance Companies (NAMIC), Mary A. Griffin, President and CEO of the Life Insurance Council of New York (LICONY), Gov. Dirk Kempthorne, President and CEO of the American Council of Life Insurers (ACLI), and Frank Nutter, President of the Reinsurance Association of America (RAA), discussed emerging issues impacting the insurance industry. The panel was moderated by FaegreBD Partner Shaun Clifford.

The panel provided insight into the following topics:

• Covered Agreement and Implementation: Mr. Nutter noted that the RAA supports implementation of the Covered Agreement using the current Qualified Jurisdiction framework. Mr. Chamness explained that the Treasury’s Policy Statement did a good job clarifying key provisions of the Covered Agreement.
• New York Suitability Regulation: Governor Kempthorne argued that extending the suitability standard to life insurance is inappropriate due to differences in the products. Ms. Griffin noted that LICONY continues to engage with the NYDFS on the proposed changes to the regulation.
• Tax Reform: The panelists agreed that the rate reduction and the preservation of most of Subchapter L constituted wins for the insurance industry.
• Impact of 2017 Catastrophes: Mr. Chamness touted the effectiveness of states and municipalities having strong building codes and the importance of preparation.

In his parting remarks, Governor Kempthorne thanked several of the attendees for their work over the years and noted that there is a place for a Federal Insurance Office that plays an advisory role — but not a regulatory role.

State Ahead: A Conversation With the NAIC President

Julie Mix McPeak, Commissioner of the Tennessee Department of Commerce & Insurance and President of the National Association of Insurance Commissioners, had a lively discussion with FaegreBD Partner Pat Hughes regarding the direction of the NAIC and the roll-out of its strategic plan, “State Ahead.”

Pat and Commissioner McPeak discussed the following topics:

• Covered Agreement Implementation Timing: Commissioner McPeak highlighted the NAIC’s desire to complete edits to Credit for Reinsurance Model Law and the Credit for Reinsurance Model Regulation by the end of 2018. Minutes after her presentation, Commissioner McPeak issued a memorandum to the Financial Condition (E) Committee seeking to operationalize this aggressive timeline.
• Extension of Covered Agreement to Other Jurisdictions: Commissioner McPeak noted that a consensus is starting to develop regarding extending the collateral provisions of the Covered Agreement to reinsurers in other jurisdictions that meet certain standards. The NAIC, however, would want the U.S. system to get something in return, and she argued that having mutual recognition of the U.S. group supervision and capital regime would be a good place to start.
• Macro-Prudential Initiative: Commissioner McPeak highlighted the importance of the NAIC’s Macro-Prudential Initiative (MPI) as it relates to the NAIC’s larger strategic plan. She noted that the Financial Stability Task Force’s work on increasing regulators’ ability to collect liquidity-related information is a major step in furtherance of the MPI.
• On the ABA: Echoing the comments of Team USA, Commissioner McPeak noted that the NAIC is generally in favor of the ABA, but explained the devil will be in the details. She added that industry can count on regulators developing a proportional, not a one-size-fits-all approach.

Data, Cyber and Insurance: Evolving Regulations for a Changing Industry

Jigar Gandhi, Counsel at the American Council of Life Insurers, J. Kevin A. McKechnie, Executive Director of the Health Savings Account (HSA) Council and Senior Vice President of the American Bankers Association, and David F. Snyder, Vice President of International Policy at the Property Casualty Insurers Association of America, waded into the complex world of data and cybersecurity. The panel was moderated by FaegreBD Partner Scott Kosnoff.

Mr. Gandhi noted that Rhode Island and South Carolina have introduced the NAIC’s Data Security Model and explained that the trades may have some suggested tweaks to the Model as it is introduced in state legislatures. Mr. Snyder outlined three major suggested changes:

1. Strengthening the notion that the law would establish the exclusive obligation for insurers.
2. Developing a strong safe-harbor for complying with New York’s standards.
3. Strengthening confidentiality provisions.

Mr. McKechnie noted the importance of companies having appropriate governance and process tools in place to help prevent breaches and highlighted the problems associated with open-source code.

Politics and Policy: Outlook for 2018

FaegreBD Partner Alison Watson moderated this energetic panel of top government relations experts discussing their roles in communicating the insurance industry’s priorities to public policymakers. The panel included: Alan Brubaker, Vice President of External Affairs, Prudential Financial; Bridget Hagan, Executive Director, Insurance Coalition and Partner, Cypress Group; and John Hughes, Vice President, Federal Government Relations, USAA.

The panel discussed:

• The difficulties in educating Members of Congress and staff about the insurance industry. Bridget Hagan noted the fact that insurance is state regulated makes education very difficult, while John Hughes added that members and staff are often overwhelmed and turnover is high as additional complicating factors.
• Managing and setting the expectations of industry executives that are not used to the slow, often partisan pace of Washington, D.C. The panelists talked about some of the initiatives they had championed over the years, explaining how the long, sometimes painful processes required patience and compromise to achieve success.
• The uncertainty of the path ahead. Numerous retirements and competitive midterm races will likely cause Congress to look a lot different at this time next year. Alan Brubaker stressed that as insurance advocates, they must continue looking for the Members who want to get things done, regardless of political party, and cultivate those relationships into action.

Views From the Executive Branch: Year Two and The Road Ahead

Mark A. Calabria, Assistant to the Vice President and Chief Economist in the Office of Vice President Mike Pence, joined the Summit to share his views on the economy and financial regulation in the Trump administration. Mr. Calabria was introduced by FaegreBD Partner Alison Watson.

• Calabria touched on the strong economic and labor growth in the U.S. economy over the past year, especially in the manufacturing and construction sectors. He added that the recently passed Tax Cuts and Jobs Act will only further that growth, leading to further wage increases across the board, while adding that over four million workers have already received bonuses or raises.
• Calabria discussed the October 2017 Treasury Core Principles Report on the Asset Management and Insurance Industries, highlighting the report’s respect for the state-based regulation of insurance and recognition that insurance companies have different funding and business models than banks and, in turn, should be treated differently.
• Calabria also touched on financial stability, noting that while he doesn’t believe Dodd-Frank will ever be fully repealed, the Senate regulatory bill is a good start, and there will be opportunities to make more changes in the future.

Department of Labor in 2018: A Conversation With Assistant Secretary Rutledge

Preston Rutledge, Assistant Secretary of the Employee Benefits Security Administration (EBSA) in the Department of Labor, gave an update on EBSA’s current priorities and a look ahead at what’s in the pipeline for the Department this year. He engaged in a Q&A with Peter G. Gallanis, President of the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA), that focused more narrowly on retirement security.

• Current Priorities: EBSA has been primarily focused on health care policy following the October Executive Order “Promoting Healthcare Choice and Competition Across the United States” that directed DOL to take a closer look at Association Health Plans (AHPs), Short Term Limited Duration Plans (STLDIs) and Health Reimbursement Arrangements (HRAs). Comments received on the proposed rule regarding AHPs are in review currently, and the comment period for STLDIs remains open. There is no outstanding comment period for HRAs yet, but Mr. Rutledge expressed desire to hear thoughts and comments on how to remove limitations on those arrangements. Assistant Secretary Rutledge addressed the delay of the Fiduciary Rule as an opportunity to conduct an analysis of exemptions and BICE, but no decisions have been made as to what the next steps will be.
• Looking Ahead: Future initiatives for the Department include open MEPs, increased flexibility regarding lifetime income, and identifying ways to make safe harbor more usable to help choose annuity providers.
• Retirement Security: Assistant Secretary Rutledge emphasized that the focus in the retirement space is primarily on trying to get more small companies engaged in the retirement savings business through voluntary measures. In his view, the Department should implement all the policy ideas that exist in the voluntary context before moving beyond that to gauge success. In response to a comment from Mr. Gallanis on the retirement income conundrum, Assistant Secretary Rutledge stated that the private market solution to that issue has always been the fixed income annuity.

Highlights From the 2018 NFI Insurance Public Policy Summit (Image Gallery)